Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model

Aye, Goodness C. and Gupta, Rangan and Lau, Marco C. K. and Sheng, Xin (2019) Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model. Applied Economics, 51 (33). pp. 3624-3631. ISSN 1466-4283

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Official URL: https://doi.org/10.1080/00036846.2019.1584373

Abstract

This paper uses a time-varying parameter-panel vector autoregressive (TVP-PVAR) model to analyze the role played by domestic and US news-based measures of uncertainty in forecasting the growth of industrial production of 12 Organisation for Economic Co-operation and Development (OECD) countries. Based on a monthly out-of-sample period of 2009:06 to 2017:05, given an in-sample of 2003:03 to 2009:05, there are only 46% of cases where domestic uncertainty can improve the forecast of output growth relative to a baseline monetary TVP-PVAR model, which includes inflation, interest rate and nominal exchange rate growth, besides output growth. Moreover, including US uncertainty does not necessarily improve the forecasting performance of output growth from the TVP-PVAR model which includes only the domestic uncertainty along with the baseline variables. So, in general, while uncertainty is important in predicting the future path of output growth in the 12 advanced economies considered, a forecaster can do better in majority of the instances by just considering the information from standard macroeconomic variables.

Item Type: Journal Article
Keywords: economic uncertainty, output growth, time-varying parameter, panel vector autoregressions, OECD countries
Faculty: Faculty of Business & Law
Depositing User: Lisa Blanshard
Date Deposited: 06 Apr 2020 13:43
Last Modified: 06 Apr 2020 13:43
URI: http://arro.anglia.ac.uk/id/eprint/705389

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