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A Monte Carlo study of the forecasting performance of empirical SETAR models

By Michael P. Clements and Jeremy Smith


In this paper we investigate the multi-period forecast performance of a number of empirical selfexciting threshold autoregressive (SETAR) models that have been proposed in the literature formodelling exchange rates and GNP, amongst other variables. We take each of the empirical SETAR models in turn as the DGP to ensure that the ‘non-linearity’ characterises the future, and compare the forecast performance of SETAR and linear autoregressive models on a number of quantitative and qualitative criteria. Our results indicate that non-linear models have an edge in certain states of nature but not in others, and that this can be highlighted by evaluating forecasts conditional upon the regime

Topics: HB
Publisher: University of Warwick, Department of Economics
Year: 1997
OAI identifier:

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