Intercept Corrections and Structural Change
Michael Clements and
David Hendry ()
Journal of Applied Econometrics, 1996, vol. 11, issue 5, 475-94
Analyses of forecasting that assume a constant, time-invariant data generating process (DGP), and so implicitly rule out structural change or regime shifts in the economy, ignore an aspect of the real world responsible for some of the more dramatic historical episodes of predictive failure. Some models may offer greater protection against unforeseen structural breaks than others, and various tricks may be employed to robustify forecasts to change. We show that in certain states of nature, vector autoregressions in the differences of the variables (in the spirit of Box-Jenkins time-series-modelling), can outperform vector 'equilibrium-correction' mechanisms. However, appropriate intercept corrections can enhance the performance of the latter, albeit that reductions in forecast bias may only be achieved at the cost of inflated forecast error variances. Copyright 1996 by John Wiley & Sons, Ltd.
References: Add references at CitEc
Citations View citations in EconPapers (79) Track citations by RSS feed
Downloads: (external link)
http://links.jstor.org/sici?sici=0883-7252%2819960 ... 0.CO%3B2-9&origin=bc full text (application/pdf)
http://qed.econ.queensu.ca:80/jae/1996-v11.5/ Supporting data files and programs (text/html)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:11:y:1996:i:5:p:475-94
Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252
Access Statistics for this article
Journal of Applied Econometrics is currently edited by M. Hashem Pesaran
More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Series data maintained by Wiley-Blackwell Digital Licensing ().