Out-of-sample forecasts of China's economic growth and inflation using rolling weighted least squares |
| |
Institution: | Academy of Mathematics and Systems Science, Chinese Academy of Sciences, China;Center for forecasting Science, Chinese Academy of Sciences, China;Department of Economics and Department of Statistical Science, Cornell University, USA;Wang Yanan Institute for Studies in Economics(WISE)and Ministry of Education Key Laboratory of Econometrics, Xiamen University,China;Academy of Mathematics and Systems Science, Chinese Academy of Sciences, China;Center for forecasting Science, Chinese Academy of Sciences, China;School of Economics and Management, University of Chinese Academy of Sciences, China |
| |
Abstract: | Macroeconomic forecasting in China is essential for the government to take proper policy decisions on government expenditure and money supply, among other matters. The existing literature on forecasting Chinas macroeconomic variables is unclear on the crucial issue of how to choose an optimal window to estimate parameters with rolling out-of-sample forecasts. This study fills this gap in forecasting economic growth and inflation in China, by using the rolling weighted least squares (WLS) with the practically feasible cross-validation (CV) procedure of Hong et al. (2018) to choose an optimal estimation window. We undertake an empirical analysis of monthly data on up to 30 candidate indicators (mainly asset prices) for a span of 17 years (2000–2017). It is documented that the forecasting performance of rolling estimation is sensitive to the selection of rolling windows. The empirical analysis shows that the rolling WLS with the CV-based rolling window outperforms other rolling methods on univariate regressions in most cases. One possible explanation for this is that these macroeconomic variables often suffer from structural changes due to changes in institutional reforms, policies, crises, and other factors. Furthermore, we find that, in most cases, asset prices are key variables for forecasting macroeconomic variables, especially output growth rate. |
| |
Keywords: | Cross-validation Optimal rolling window Rolling out-of-sample forecasts Structural changes Weighted least squares C2 C13 |
本文献已被 万方数据 ScienceDirect 等数据库收录! |
|