Forecasting Levels of log Variables in Vector Autoregressions

Gunnar Bårdsen and Helmut Luetkepohl
Authors registered in the RePEc Author Service: Helmut Lütkepohl

No ECO2009/24, Economics Working Papers from European University Institute

Abstract: Sometimes forecasts of the original variable are of interest although a variable appears in logarithms (logs) in a system of time series. In that case converting the forecast for the log of the variable to a naive forecast of the original variable by simply applying the exponential transformation is not optimal theoretically. A simple expression for the optimal forecast under normality assumptions is derived. Despite its theoretical advantages the optimal forecast is shown to be inferior to the naive forecast if specification and estimation uncertainty are taken into account. Hence, in practice using the exponential of the log forecast is preferable to using the optimal forecast.

Keywords: Vector autoregressive model; cointegration; forecast root mean square error (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://cadmus.eui.eu/dspace/bitstream/1814/11676/1/ECO_2009_24.pdf main text
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://cadmus.eui.eu/dspace/bitstream/1814/11676/1/ECO_2009_24.pdf [301 Moved Permanently]--> https://cadmus.eui.eu/dspace/bitstream/1814/11676/1/ECO_2009_24.pdf)

Related works:
Journal Article: Forecasting levels of log variables in vector autoregressions (2011)
Working Paper: Forecasting Levels of log Variables in Vector Autoregressions (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2009/24

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().