MULTIVARIATE NONLINEAR FORECASTING Using Financial Information to Forecast the Real Sector

Ted Jaditz, Leigh A. Riddick and Chera L. Sayers

Macroeconomic Dynamics, 1998, vol. 2, issue 3, 369-382

Abstract: Previous work shows that financial series contain important information on the current state of the economy and expectations for the future. Further, numerous papers find links between the financial sectors and the real sectors of the economy. We add to those findings by exploring whether financial variables help to forecast the growth rate of industrial production. We evaluate linear and nonlinear forecasting methods using out-of-sample forecasting performance. We compare autoregressive models, error-correcting models, and multivariate nearest-neighbor regression models, and we explore the use of optimally combined forecasts. We find that no single forecasting technique appears to outperform any other method, and the evidence for persistent nonlinear patterns is weak. However, although nonparametric methods do not offer significant improvements in forecast accuracy by themselves, more accurate forecasts are obtained when the nonlinear forecasts are optimally combined. Our results indicate that financial information can statistically improve the forecasts of the real sector in these combined models, but the magnitude of the improvement in root-mean-squared error is small.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:2:y:1998:i:03:p:369-382_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().