Nonlinearity,nonstationarity, and spurious forecasts |
| |
Authors: | Vadim Marmer |
| |
Institution: | Department of Economics, University of British Columbia, 997 - 1873 East Mall, Vancouver, Canada BC V6T 1Z1 |
| |
Abstract: | Implications of nonlinearity, nonstationarity, and misspecification are considered from a forecasting perspective. Our model allows for small departures from the martingale difference sequence hypothesis by including a nonlinear component, formulated as a general, integrable transformation of the I(1) predictor. We assume that the true generating mechanism is unknown to the econometrician and he is therefore forced to use some approximating functions. It is shown that in this framework the linear regression techniques lead to spurious forecasts. Improvements of the forecast accuracy are possible with properly chosen nonlinear transformations of the predictor. The paper derives the limiting distribution of the forecasts’ mean squared error (MSE). In the case of square integrable approximants, it depends on the L2-distance between the nonlinear component and approximating function. Optimal forecasts are available for a given class of approximants. |
| |
Keywords: | C22 C53 G14 |
本文献已被 ScienceDirect 等数据库收录! |
|