Quantile regression analysis to predict GDP distribution using data from the US and UK

Thi Huyen Tran and Robert Ślepaczuk
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Thi Huyen Tran: University of Warsaw, Faculty of Economic Sciences, Quantitative Finance Research Group

No 2022-30, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper aims to find the best models to forecast one-quarter-ahead and one-year-ahead US and UK real GDP growth distributions by employing quantile regression with skewed-t distribution on different sets of relevant near-term predictors. The research data period starts in 1947Q1/1955Q1 for US/UK data and ends in 2021Q3/2020Q4 for one-quarter-ahead/one-year-ahead prediction. The out-of-sample period ranges from 1996Q3 to 2021Q3 for one-quarter-ahead prediction and to 2020Q4 for one-year-ahead forecasting. The author applies a two-step testing procedure, in which models with the lowest average error in out-of-sample period are selected to the next step where the cumulative distribution functions of probability integral transforms are computed for the out-of-sample period, to select the best models. The improvement in the final forecasts of the tested models results, among others, from the use of new macroeconomic data with a higher frequency and focusing on the specific properties of the tested models separately for the US and UK. The chosen best models indicate that there exist better models than the model proposed by Adrian et al. (2016) to predict US growth distributions and that near-term predictors can produce good UK growth forecasts. Additionally, some simplified models associated with significantly lower portion of model risk are detected to produce meaningful forecasts for both US and UK case. For the US data, there exist several models that can produce timely predicted results.

Keywords: GDP growth; density forecast; quantile regression; US GDP; UK GDP; cumulative distribution function; probability integral transform; out-of-sample forecasting (search for similar items in EconPapers)
JEL-codes: C15 C31 C52 C53 C54 C58 E01 E17 F43 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022
New Economics Papers: this item is included in nep-for
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