Abstract
We propose a simple and reproducible methodology to create a single equation forecasting model (SEFM) for low-frequency macroeconomic variables. Our methodology is illustrated by forecasting annual real GDP growth rates for 52 African countries, where the data are obtained from the World Bank and start in 1960. The models include lagged growth rates of other countries, as well as a cointegration relationship to capture potential common stochastic trends. With a few selection steps, our methodology quickly arrives at a reasonably small forecasting model per country. Compared with benchmark models, the single equation forecasting models seem to perform quite well.
Highlights
We find that, roughly speaking, our single equation forecasting models substantially improve on the MA(1) model in close to about half of the cases
An overview of how the single equation forecasting model performs is provided in Table 1, where we present the results after applying our methodology outlined in Section 2 to the growth rates of 52 African countries, where we choose τ = 0.4, and k pc = k nc = 3
We have proposed a simple and reproducible methodology to create single equation forecasting models for low-frequency macroeconomic variables
Summary
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. We will create models for 1960–2010, and we will use 2011 up to and including 2016 to evaluate the accuracy of recursively created one-year-ahead forecasts for the growth rates. The question that we address is whether it helps to include information from other countries to predict real GDP growth for a focus country Such information can concern the past growth rates of each of these countries and a cointegration relationship. Section starts with a detailed illustration for one country, use formal statistical tests to reduce the number of parameters in the final stage. Before in this caseall thesteps real GDP growth rates ofSection. Our paper concludes with a discussion of the limitations and some avenues for further research
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