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

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posted on 2023-07-26, 14:57 authored by Goodness C. Aye, Rangan Gupta, Marco C. K. Lau, Xin Sheng
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.

History

Refereed

  • Yes

Volume

51

Issue number

33

Page range

3624-3631

Publication title

Applied Economics

ISSN

1466-4283

Publisher

Taylor & Francis

Language

  • other

Legacy posted date

2020-04-06

Legacy Faculty/School/Department

Faculty of Business & Law

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