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Forecasting the world economy in the short-term

Audrone Jakaitiene () and Stephane Dees ()

No 1059, Working Paper Series from European Central Bank

Abstract: Forecasting the world economy is a difficult task given the complex interrelationships within and across countries. This paper proposes a number of approaches to forecast short-term changes in selected world economic variables and aims, first, at ranking various forecasting methods in terms of forecast accuracy and, second, at checking whether methods forecasting di- rectly aggregate variables (direct approaches)out-perform methods based on the aggregation of country- specific forecasts (bottom-up approaches). Overall, all methods perform better than a simple benchmark for short horizons (up to three months ahead). Among the forecasting approaches used, factor models appear to perform the best. Moreover, direct approaches out-perform bottom-up ones for real variables, but not for prices. Finally, when country-specific forecasts are adjusted to match direct forecasts at the aggregate levels (top-down approaches), the forecast accuracy is neither improved nor deteriorated (i.e. top-down and bottom-up approaches are broadly equivalent in terms of country-specific forecast accuracy). JEL Classification: C53, C32, E37, F17

Keywords: factor models; forecasts; Time series models. (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-ecm and nep-for
Note: 2544114
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Journal Article: Forecasting the World Economy in the Short Term (2012) Downloads
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