The way out of recessions: A forecasting analysis for some Euro area countries

Frédérique Bec, Othman Bouabdallah and Laurent Ferrara

International Journal of Forecasting, 2014, vol. 30, issue 3, 539-549

Abstract: This paper proposes a two-regime Bounce-Back Function augmented Self-Exciting Threshold AutoRegression (SETAR) model which allows for various shapes of recoveries from the recession regime. It relies on the bounce-back effects which were first analyzed in a Markov-Switching setup by Kim, Morley, and Piger (2005), and were recently extended by Bec, Bouabdallah, and Ferrara (2011). This approach is then applied to the post-1973 quarterly growth rates of French, German, Italian, Spanish and Euro area real GDPs. Both the linear autoregression and the standard SETAR without the bounce-back effect null hypotheses are strongly rejected against the Bounce-Back augmented SETAR alternative in all cases but Italy. The relevance of our proposed model is further assessed by a comparison of its short-term forecasting performances with those obtained from a linear autoregression and a standard SETAR. It turns out that the bounce-back model’s one-step-ahead forecasts generally outperform the other ones, particularly during the last recovery period in 2009Q3–2010Q4.

Keywords: Threshold autoregression; Bounce-back effects; Asymmetric business cycles (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:30:y:2014:i:3:p:539-549

DOI: 10.1016/j.ijforecast.2013.01.004

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