Forecasting the World Economy in the Short-Term

Audrone Jakaitiene () and Stephane Dees ()

No 1059, Working Paper Series from European Central Bank

Abstract: Forecasting the world economy is a difficult task given the complex inter relationships within and across countries. This paper proposes a number of approaches to forecast short-term changes in selected world economic variables and aims, first, at ranking various forecasting methods in terms of forecast accuracy and, second, at checking whether methods forecasting directly aggregate variables (direct approaches) outperform methods based on the aggregation of country-speci.c forecasts (bottom-up approaches). Overall, all methods perform better than a simple benchmark for short horizons (up to three months ahead). Among the forecasting approaches used, factor models appear to perform the best. Moreover, direct approaches outperform bottom-up ones for real variables, but not for prices. Finally, when country-specific forecasts are adjusted to match direct forecasts at the aggregate levels (top-down approaches), the forecast accuracy is neither improved nor deteriorated (i.e. top-down and bottom-up approaches are broadly equivalent in terms of country-specific forecast accuracy). JEL Classification: C53, C32, E37, F17.

Keywords: Factor models; Forecasts; Time series models. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-for
Date: 2009-06
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