TY - JOUR
T1 - Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model
AU - Aye, Goodness
AU - Gupta, Rangan
AU - Lau, Chi Keung
AU - Sheng, Xin
PY - 2019/7/15
Y1 - 2019/7/15
N2 - 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.
AB - 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.
KW - Economic Uncertainty
KW - Output Growth
KW - Time Varying Parameter
KW - Panel Vector Autoregressions
KW - OECD Countries
UR - http://www.scopus.com/inward/record.url?scp=85062331681&partnerID=8YFLogxK
U2 - 10.1080/00036846.2019.1584373
DO - 10.1080/00036846.2019.1584373
M3 - Article
VL - 51
SP - 3624
EP - 3631
JO - Applied Economics
JF - Applied Economics
SN - 0003-6846
IS - 33
ER -