Log versus level in VAR forecasting: 16 Million empirical answers - expect the unexpected
Johannes Mayr () and
No 42, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich
The use of log-transformed data has become standard in macroeconomic forecasting with VAR models. However, its appropriateness in the context of out-of-sample forecasts has not yet been exposed to a thorough empirical investigation. With the aim of filling this void, a broad sample of VAR models is employed in a multi-country setup and approximately 16 Mio. pseudo-out-of-sample forecasts are evaluated. The results show that, on average, the knee-jerk transformation of the data is at best harmless.
JEL-codes: C52 C53 (search for similar items in EconPapers)
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