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Error-correction versus Differencing in Macroeconomic Forecasting

Øyvind Eitrheim, T.A. Husebo and Ragnar Nymoen ()

No 01/1998, Memorandum from Oslo University, Department of Economics

Abstract: Recent work by Clements and Hendry have shown why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, ECMs. For example, dVAR forecasts are insulated from parameter non-constancies in the long run mean of the cointegration relationships. In this paper, the practical relevance of these issues are investigated for RIMINI, the quarterly model of the Central Bank of Norway, which we take as an example of an ECM forecasting model.

Keywords: FORECASTS; MACROECONOMICS (search for similar items in EconPapers)
JEL-codes: C53 E27 E47 (search for similar items in EconPapers)
Pages: 26 pages
Date: 1998
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