Mind your Ps and Qs! Improving ARMA forecasts with RBC priors

Kirdan Lees and Troy D. Matheson ()

No DP2005/02, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: We utilise prior information from a simple RBC model to improve ARMA forecasts of post-war US GDP. We develop three alternative ARMA forecasting processes that use varying degrees of information from the Campbell (1994) flexible labour model. Directly calibrating the model produces poor forecasting performance whereas a model that uses a Bayesian framework to take the model to the data, yields forecasting performance comparable to a purely statistical ARMA process. A final model that uses theory only to restrict the order of the ARMA process (the ps and qs), but that estimates the ARMA parameters using maximum likelihood, yields improved forecasting performance.

JEL-codes: C11 C22 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ecm, nep-ets, nep-for and nep-mac
Date: Written 2005-10
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Related works:
Journal Article: Mind your ps and qs! Improving ARMA forecasts with RBC priors (2007)
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