Accessibility navigation


Intercept corrections and structural change

Clements, M. P. ORCID: https://orcid.org/0000-0001-6329-1341 and Hendry, D. F. (1996) Intercept corrections and structural change. Journal of Applied Econometrics, 11 (5). pp. 475-494. ISSN 1099-1255

Full text not archived in this repository.

It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1002/(SICI)1099-1255(199609)11:5<475::AID-JAE409>3.0.CO;2-9

Abstract/Summary

Analyses of forecasting that assume a constant, time-invariant data generating process (DGP), and so implicitly rule out structural change or regime shifts in the economy, ignore an aspect of the real world responsible for some of the more dramatic historical episodes of predictive failure. Some models may offer greater protection against unforeseen structural breaks than others, and various tricks may be employed to robustify forecasts to change. We show that in certain states of nature, vector autoregressions in the differences of the variables (in the spirit of Box-Jenkins time-series modelling), can outperform vector ‘equilibrium-correction’ mechanisms. However, appropriate intercept corrections can enhance the performance of the latter, albeit that reductions in forecast bias may only be achieved at the cost of inflated forecast error variances.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:72765
Publisher:Wiley

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation