Log versus Level in VAR Forecasting: 42 Million Empirical Answers - Expect the Unexpected

Johannes Mayr and Dirk Ulbricht

No 1412, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: 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 set up and approximately 42 Mio. pseudo-out-of-sample forecasts of GDP are evaluated. The results show that, on average, the knee-jerk transformation of the data is at best harmless.

Keywords: VAR-forecasting; Logarithmic transformation (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
Pages: 14 p.
Date: 2014
New Economics Papers: this item is included in nep-ets and nep-for
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Journal Article: Log versus level in VAR forecasting: 42 million empirical answers—Expect the unexpected (2015)
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