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Forecasting in Nonstationary Environments: What Works and What Doesn't in Reduced-Form and Structural Models

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  • Raffaella Giacomini

    (Department of Economics, University College London, WC1H 0AX London, United Kingdom
    Centre for Microdata Methods and Practice (CeMMAP), WC1E 7AE London, United Kingdom)

  • Barbara Rossi

    (ICREA, Universitat Pompeu Fabra, Barcelona Graduate School of Economics, and Centre de Recerca Economia Internacional (CREI), 08005 Barcelona, Spain)

Abstract
This review provides an overview of forecasting methods that can help researchers forecast in the presence of nonstationarities caused by instabilities. The emphasis of the review is both theoretical and applied, and we provide several examples of interest to economists. We show that modeling instabilities can help, but it depends on how they are modeled. We also demonstrate how to robustify a model against instabilities.

Suggested Citation

  • Raffaella Giacomini & Barbara Rossi, 2015. "Forecasting in Nonstationary Environments: What Works and What Doesn't in Reduced-Form and Structural Models," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 207-229, August.
    • Handle: RePEc:anr:reveco:v:7:y:2015:p:207-229
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080614-115338
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    Cited by:

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    3. repec:zbw:bofrdp:037 is not listed on IDEAS
    4. Alessandro Casini & Pierre Perron, 2018. "Structural Breaks in Time Series," Boston University - Department of Economics - Working Papers Series WP2019-02, Boston University - Department of Economics.
    5. Graham Elliott & Allan Timmermann, 2016. "Forecasting in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 81-110, October.
    6. Alessandro Casini, 2021. "Theory of Evolutionary Spectra for Heteroskedasticity and Autocorrelation Robust Inference in Possibly Misspecified and Nonstationary Models," Papers 2103.02981, arXiv.org, revised Aug 2024.
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    More about this item

    Keywords

    instabilities; structural breaks;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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