Forecasting time series with long memory and level shifts

Philip Hans Franses and Namwon Hyung
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Namwon Hyung: University of Seoul, Korea, Postal: University of Seoul, Korea

Journal of Forecasting, 2005, vol. 24, issue 1, 1-16

Abstract: It is well known that some economic time series can be described by models which allow for either long memory or for occasional level shifts. In this paper we propose to examine the relative merits of these models by introducing a new model, which jointly captures the two features. We discuss representation and estimation. Using simulations, we demonstrate its forecasting ability, relative to the one-feature models, both in terms of point forecasts and interval forecasts. We illustrate the model for daily S&P500 volatility. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:24:y:2005:i:1:p:1-16

DOI: 10.1002/for.937

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