Weighting schemes in global VAR modelling: a forecasting exercise
Florian Martin and
Jesús Crespo Cuaresma ()
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Florian Martin: Vienna University of Economics and Business (WU)
Jesús Crespo Cuaresma: Vienna University of Economics and Business (WU)
Letters in Spatial and Resource Sciences, 2017, vol. 10, issue 1, 45-56
Abstract We provide a comprehensive analysis of the out-of-sample predictive accuracy of different global vector autoregressive (GVAR) specifications based on alternative weighting schemes to address global spillovers across countries. In addition to weights based on bilateral trade, we entertain schemes based on different financial variables and geodesic distance. Our results indicate that models based on trade weights, which are standard in the literature, are systematically outperformed in terms of predictive accuracy by other specifications. We find that, while information on financial linkages helps improve the forecasting accuracy of GVAR models, averaging predictions by means of simple predictive likelihood weighting does not appear to systematically lead to lower forecast errors.
Keywords: Global VAR modelling; Forecasting; Global spillovers (search for similar items in EconPapers)
JEL-codes: C31 E44 (search for similar items in EconPapers)
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