Journal article

Forecasting with equilibrium-correction models during structural breaks

Abstract:: When location shifts occur, cointegration-based equilibrium-correction models (EqCMs) face forecasting problems. We consider alleviating such forecast failure by updating, intercept corrections, differencing, and estimating the future progress of an 'internal' break. Updating leads to a loss of cointegration when an EqCM suffers an equilibrium-mean shift, but helps when collinearities are changed by an 'external' break with the EqCM staying constant. Both mechanistic corrections help compared to retaining a pre-break estimated model, but an estimated model of the break process could outperform. We apply the approaches to EqCMs for UK M1, compared with updating a learning function as the break evolves.

Publication status:: Published

Peer review status:: Peer reviewed

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APA Style

Castle, J., Fawcett, N., & Hendry, D. (2010). Forecasting with equilibrium-correction models during structural breaks. Journal of Econometrics, 158(1), 25–36.

MLA Style

Castle, J., et al. “Forecasting with Equilibrium-Correction Models during Structural Breaks.” Journal of Econometrics, vol. 158, no. 1, Elsevier, 2010, pp. 25–36.

Chicago Style

Castle, J, N Fawcett, and D Hendry. 2010. “Forecasting with Equilibrium-Correction Models during Structural Breaks.” Journal of Econometrics 158 (1): 25–36.
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Files:: Castle-et-al.pdf

(Preview, Accepted manuscript, pdf, 279.4KB, Terms of use)

Publisher copy:: 10.1016/j.jeconom.2010.03.004

Authors

+ Castle, J More by this author

Institution:: University of Oxford
Division:: SSD
Department:: Economics
Role:: Author

+ Fawcett, N More by this author

Role:: Author

+ Hendry, D More by this author

Institution:: University of Oxford
Division:: SSD
Department:: Economics
Sub department:: EMOD
Role:: Author

Publisher:: Elsevier
Journal:: Journal of Econometrics More from this journal
Volume:: 158
Issue:: 1
Pages:: 25-36
Publication date:: 2010-03-11
DOI:: 10.1016/j.jeconom.2010.03.004
ISSN:: 0304-4076

Keywords:: Location shifts

Cointegration

SBTMR

Colinearity

Equilibrium-correction

M1

Forecasting
Pubs id:: pubs:300139
UUID:: uuid:f9656b10-65ea-4d23-9f58-6c48319da49e
Local pid:: pubs:300139
Source identifiers:: 300139
Deposit date:: 2016-12-16

Terms of use

Copyright holder:: Elsevier
Copyright date:: 2010
Notes:: © 2010 Elsevier B.V. All rights reserved. This is the accepted manuscript version of the article. The final version is available online from Elsevier at: https://doi.org/10.1016/j.jeconom.2010.03.004.

Licence:: CC Attribution-NonCommercial-NoDerivatives (CC BY-NC-ND)

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