Development of Short-term Forecasting Models for Non-oil GDP

Nazrin Ramazanova and Ogtay Gahramanov

No 2404, Working Papers from Central Bank of Azerbaijan Republic

Abstract: Short-term forecasting of non-oil GDP is essential for preparing its medium-term projections. This paper evaluates the performance of three key forecasting models—Vector Autoregression (VAR), Mixed Data Sampling (MIDAS), and Dynamic Factor Models (DFM)—in predicting quarterly growth of non-oil GDP. The empirical results show that most models outperform the AR(1) benchmark in quarterly forecasts. To leverage the strengths of each model, the study also examines combined forecast results. A forecast combination based on mean squared error (MSE) weights improves forecast accuracy compared to individual models. Overall, the findings highlight the advantages of a multi-model forecasting strategy for enhancing the accuracy of short-term GDP growth predictions in Azerbaijan’s dynamic economic environment. The results emphasize the practical benefits of using combination methods to strengthen the reliability of short-term forecasts.

Keywords: short-term forecasting; non-oil GDP; forecast combination (search for similar items in EconPapers)
JEL-codes: C32 E52 O40 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2024-04-20
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Persistent link: https://EconPapers.repec.org/RePEc:aze:wpaper:2404

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