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Licensed Unlicensed Requires Authentication Published by De Gruyter October 21, 2016

Selection of an Estimation Window in the Presence of Data Revisions and Recent Structural Breaks

Jari Hännikäinen

Abstract

In this paper, we analyze the forecasting performance of a set of widely used window selection methods in the presence of data revisions and recent structural breaks. Our Monte Carlo and empirical results for U.S. real GDP and inflation show that the expanding window estimator often yields the most accurate forecasts after a recent break. It performs well regardless of whether the revisions are news or noise, or whether we forecast first-release or final values. We find that the differences in the forecasting accuracy are large in practice, especially when we forecast inflation after the break of the early 1980s.

JEL Classification: C22; C53; C82

Acknowledgments

I would like to thank the editor, Atsushi Inoue, two anonymous referees, Henri Nyberg, Jari Vainiomäki, Helinä Laakkonen, Markku Lanne, Juhani Raatikainen and the seminar participants in the FDPE Econometrics Workshop and in the XXXV Annual Meeting of the Finnish Economic Association for helpful comments and discussion. Financial support from the FDPE and the OP-Pohjola Group Research Foundation is gratefully acknowledged. All mistakes are mine.

Appendix

Table 13:

Means and Standard Deviations.

ExperimentE(y˜1t)E(y˜2t)E(y1tt+1)E(y2tt+1)σy˜1tσy˜2tσy1tt+1σy2tt+1
News
 12.2552.2552.1282.1282.5142.5141.9571.957
 22.2555.1712.1284.8782.5147.1871.9575.595
 32.2551.4422.1281.3612.5142.0351.9571.584
 41.4425.1711.3614.8782.0357.1871.5845.595
 55.1711.4424.8781.3617.1872.0355.5951.584
 62.2552.2552.1282.1282.5147.5411.9575.871
 72.2552.2552.1282.1282.5140.8381.9570.652
 82.2553.3832.1283.1912.5142.5141.9571.957
 92.2551.1282.1281.0642.5142.5141.9571.957
Noise
 12.0002.0001.8871.8871.7321.7321.8791.879
 22.0004.0001.8873.7741.7322.2681.8792.460
 32.0001.3331.8871.2581.7321.5491.8791.680
 41.3334.0001.2583.7741.5492.2681.6802.460
 54.0001.3333.7741.2582.2681.5492.4601.680
 62.0002.0001.8871.8871.7325.1961.8795.636
 72.0002.0001.8871.8871.7320.5771.8790.626
 82.0003.0001.8872.8301.7321.7321.8791.879
 92.0001.0001.8870.9431.7321.7321.8791.879

The table presents the means and standard deviations of the first-release (ytt+1) and final data (y˜t) for each experiment. The experiments are as defined in Table 1.

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Published Online: 2016-10-21
Published in Print: 2017-1-1

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