Forecasting international growth rates using Bayesian shrinkage and other procedures (1989)

Abstract

In our past work, Garcia-Ferrer et al. (1987), we employed several methods to forecast growth rates of real output (GNP or GDP) for eight European Economic Community (EEC) countries and the United States year by year for the period 1974–81. It was found that diffuse prior or least squares forecasts based on an autoregressive model of order 3 including leading indicator variables, denoted by AR(3)LI, were reasonably good in terms of forecast root mean-squared error (RMSE) relative to those of three naive models and of AR(3) models without leading indicator variables. Also, it was found that certain shrinkage forecasting techniques produced improved forecasting results for many countries and that our simple mechanical forecasts compared favorably with [Organization for Economic Cooperation and Development] (OECD) annual forecasts which were constructed using elaborate models and judgmental adjustments.