Forecasting economic and financial variables with global VARs

Mohammad Pesaran, Til Schuermann and L. Vanessa Smith

No 317, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper considers the problem of forecasting real and financial macroeconomic variables across a large number of countries in the global economy. To this end, a global vector autoregressive (GVAR) model previously estimated over the 1979:Q1-2003:Q4 period by Dees, de Mauro, Pesaran, and Smith (2007) is used to generate out-of-sample one-quarter- and four-quarters-ahead forecasts of real output, inflation, real equity prices, exchange rates, and interest rates over the period 2004:Q1-2005:Q4. Forecasts are obtained for 134 variables from twenty-six regions made up of thirty-three countries and covering about 90 percent of world output. The forecasts are compared to typical benchmarks: univariate autoregressive and random walk models. Building on the forecast combination literature, the paper examines the effects of model and estimation uncertainty on forecast outcomes by pooling forecasts obtained from different GVAR models estimated over alternative sample periods. Given the size of the modeling problem and the heterogeneity of the economies considered, industrialized, emerging, and less developed countries, as well as the very real likelihood of multiple structural breaks, averaging forecasts across both models and windows makes a significant difference. Indeed, the double-averaged GVAR forecasts performed better than the benchmark forecasts, especially for output, inflation, and real equity prices.

Keywords: Economic forecasting; time series analysis; Econometric models; Vector autoregression (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Forecasting economic and financial variables with global VARs (2009)
Working Paper: Forecasting Economic and Financial Variables with Global VARs (2008)
Working Paper: Forecasting Economic and Financial Variables with Global VARs (2008)
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