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

Goodness Aye, Rangan Gupta, Chi Keung Lau, Xin Sheng

Research output: Contribution to journalArticle

1 Citation (Scopus)

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.

Original languageEnglish
Pages (from-to)3624-3631
Number of pages8
JournalApplied Economics
Volume51
Issue number33
Early online date27 Feb 2019
DOIs
Publication statusPublished - 15 Jul 2019

Fingerprint

Economic cooperation
Co-development
Uncertainty
Time-varying parameters
Vector autoregressive model
Output growth
Macroeconomic variables
Industrial production
News
Forecasting performance
Inflation
Interest rates
Nominal exchange rate

Cite this

@article{24b291c77f3146e982f202774f8830a4,
title = "Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model",
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.",
keywords = "Economic Uncertainty, Output Growth, Time Varying Parameter, Panel Vector Autoregressions, OECD Countries",
author = "Goodness Aye and Rangan Gupta and Lau, {Chi Keung} and Xin Sheng",
year = "2019",
month = "7",
day = "15",
doi = "10.1080/00036846.2019.1584373",
language = "English",
volume = "51",
pages = "3624--3631",
journal = "Applied Economics",
issn = "0003-6846",
publisher = "Routledge",
number = "33",

}

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 ; Gupta, Rangan ; Lau, Chi Keung; Sheng, Xin.

In: Applied Economics, Vol. 51, No. 33, 15.07.2019, p. 3624-3631.

Research output: Contribution to journalArticle

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 -