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Forecasts with single-equation Markov-switching model: an application to the gross domestic product of Latvia

Bušs, Ginters (2010): Forecasts with single-equation Markov-switching model: an application to the gross domestic product of Latvia.

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Abstract

The paper compares one-period ahead forecasting performance of linear vector-autoregressive (VAR) models and single-equation Markov-switching (MS) models for two cases: when leading information is available and when it is not. The results show that single-equation MS models tend to perform slightly better than linear VAR models when no leading information is available. However, if reliable leading information is available, single-equation MS models tend to give somewhat less precise forecasts than linear VAR models.

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