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Real-time Forecasting of Inflation and Output Growth in the Presence of Data Revisions

Michael Clements and Ana Galvão ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We show how to improve the accuracy of real-time forecasts from models that include au-toregressive terms by estimating the models on ‘lightly-revised’data instead of using data from the latest-available vintage. Forecast accuracy is improved by reorganizing the data vintages employed in the estimation of the model in such a way that the vintages used in estimation are of a similar maturity to the data in the forecast loss function. The size of the expected reductions in mean squared error depend on the characteristics of the data revision process. Empirically, we …nd RMSFE gains of 2-4% when forecasting output growth and in‡ation with AR models, and gains of the order of 8% with ADL models.

Keywords: real-time data; news and noise revisions; optimal forecasts; multi-vintage models. JEL Classification: C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-for
Date: 2010
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