Forecasting Brazilian Output in Real Time in the Presence of breaks: a Comparison Of Linear and Nonlinear Models

Marcelle Chauvet, Elcyon Lima and Brisne Vasquez

No 118, Discussion Papers from Instituto de Pesquisa Econômica Aplicada - IPEA

Abstract: This paper compares the forecasting performance of linear and nonlinear models under the presence of structural breaks for the Brazilian real GDP growth. The Markov switching models proposed by Hamilton (1989) and its generalized version by Lam (1990) are applied to quarterly GDP from 1975:1 to 2000:2 allowing for breaks at the Collor Plans. The probabilities of recessions are used to analyze the Brazilian business cycle. The ability of each model in forecasting out-of-sample the growth rates of GDP is examined. The forecasting ability of the two models is also compared with linear specifications. We find that nonlinear models display the best forecasting performance and that specifications including the presence of structural breaks are important in obtaining a representation of the Brazilian business cycle. Neste artigo são comparadas as habilidades preditivas de modelos lineares e nãolineares, com quebras estruturais, para a taxa de crescimento do PIB do Brasil. São estimados os modelos com mudança de regime markoviana propostos por Hamilton (1989) e Lam (1990) - que generaliza o modelo de Hamilton - com dados trimestrais de 1975:1 a 2000:2. Na estimação dos modelos são permitidas quebras estruturais durante os Planos Collor I e II. As probabilidades de recessão dos modelos são utilizadas para se analisar o ciclo de negócios brasileiro. É examinada a capacidade de se prever a taxa de crescimento do PIB fora da amostra e a habilidade preditiva dos dois modelos é comparada com a de modelos lineares. Os nossos resultados revelam que os modelos não-lineares são os que apresentam o melhor desempenho preditivo e que a inclusão de quebras estruturais é importante para se obter a representação do ciclo de negócios no Brasil.

Pages: 46 pages
Date: 2015-01
New Economics Papers: this item is included in nep-ets and nep-for
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