Forecasting Brazilian output in the presence of breaks: a comparison of linear and nonlinear models

Marcelle Chauvet, Elcyon C. R. Lima and Brisne Vasquez

No 2002-28, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper compares the forecasting performance of linear and nonlinear models under the presence of structural breaks for the Brazilian real GDP growth. The Markov-switching models proposed by Hamilton (1989) and its generalized version proposed by Lam (1991) are applied to quarterly GDP from 1975:1 to 2000:2 allowing for breaks at the Collor Plans. The probabilities of recessions are used to analyze the Brazilian business cycle. The ability of each model in forecasting out-of-sample the growth rates of GDP is examined. The forecasting ability of the two models is also compared with linear specifications. The authors find that nonlinear models display the best forecasting performance and that specifications including the presence of structural breaks are important in obtaining a representation of the Brazilian business cycle.

Keywords: Forecasting; Economic conditions - Brazil; Econometric models; Brazil (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-rmg
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