Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97348
Authors: 
Giraitis, Liudas
Kapetanios, George
Price, Simon
Year of Publication: 
2012
Series/Report no.: 
Working Paper, School of Economics and Finance, Queen Mary, University of London 691
Abstract: 
We consider time series forecasting in the presence of ongoing structural change where both the time series dependence and the nature of the structural change are unknown. Methods that downweight older data, such as rolling regressions, forecast averaging over different windows and exponentially weighted moving averages, known to be robust to historical structural change, are found to be also useful in the presence of ongoing structural change in the forecast period. A crucial issue is how to select the degree of downweighting, usually defined by an arbitrary tuning parameter. We make this choice data dependent by minimizing forecast mean square error, and provide a detailed theoretical analysis of our proposal. Monte Carlo results illustrate the methods. We examine their performance on 191 UK and US macro series. Forecasts using data-based tuning of the data discount rate are shown to perform well.
Subjects: 
Recent and ongoing structural change
Forecast combination
Robust forecasts
JEL: 
C100
C590
Document Type: 
Working Paper

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