Branimir, Jovanovic and Magdalena, Petrovska (2010): Forecasting Macedonian GDP: Evaluation of different models for shortterm forecasting. Published in: National Bank of the Republic of Macedonia Working Paper (August 2010)

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Abstract
We evaluate the forecasting performance of six different models for shortterm forecasting of Macedonian GDP: 1) ARIMA model; 2) AR model estimated by the Kalman filter; 3) model that explains Macedonian GDP as a function of the foreign demand; 4) small structural model that links GDP components to a small set of explanatory variables; 5) static factor model that links GDP to the current values of several principal components obtained from a set of highfrequency indicators; 6) FAVAR model that explains GDP through its own lags and lags of the principal components. The comparison is done on the grounds of the Root Mean Squared Error and the Mean Absolute Error of the onequarterahead forecasts. Results indicate that the static factor model outperforms the other models, providing evidence that information from large dataset can indeed improve the forecasts and suggesting that future efforts should be directed towards developing a stateoftheart dynamic factor model. The simple model that links domestic GDP to foreign demand comes second, showing that simplicity must not be dismissed. The small structural model that explains every GDP component as a function of economic determinants comes third, “reviving” the interest in these oldschool models, at least for the case of Macedonia.
Item Type:  MPRA Paper 

Original Title:  Forecasting Macedonian GDP: Evaluation of different models for shortterm forecasting 
Language:  English 
Keywords:  GDP; forecasting; structural model; principal component; FAVAR; static factor model; Macedonia 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods ; Simulation Methods E  Macroeconomics and Monetary Economics > E2  Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications 
Item ID:  43162 
Depositing User:  Branimir Jovanovic 
Date Deposited:  07. Dec 2012 19:34 
Last Modified:  25. May 2015 08:39 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/43162 