Log versus level in VAR forecasting: 16 Million empirical answers - expect the unexpected

Johannes Mayr () and Dirk Ulbricht

No Ifo Working Paper No. 42, Ifo Working Paper Series from Ifo Institute for Economic Research at the University of Munich

Abstract: The use of log-transformed data has become standard in macroeconomic forecasting with VAR models. However, its appropriateness in the context of out-of-sample forecasts has not yet been exposed to a thorough empirical investigation. With the aim of filling this void, a broad sample of VAR models is employed in a multi-country setup and approximately 16 Mio. pseudo-out-of-sample forecasts are evaluated. The results show that, on average, the knee-jerk transformation of the data is at best harmless.

Keywords: VAR-forecasting; logarithmic transformation (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
Date: Written

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