Forecasting substantial data revisions in the presence of model uncertainty

G.M. Koop, Anthony Garratt, Shaun Vahey

Research output: Contribution to journalArticle

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Abstract

A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this article, we compute the probability of 'substantial revisions' that are greater (in absolute value) than the controversial 2003 revision. The predictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroscedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary UK macroeconomic measurements.
Original languageEnglish
Pages (from-to)1128-1144
Number of pages17
JournalEconomic Journal
Volume118
Issue number530
DOIs
Publication statusPublished - Jul 2008

Keywords

  • structural breaks
  • regime switching
  • model uncertainty
  • Bayesian model averaging
  • predictive densities
  • econometrics

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