Forecast performance of nonlinear error-correction models with multiple regimes

Zacharias Psaradakis and Fabio Spagnolo

Journal of Forecasting, 2005, vol. 24, issue 2, 119-138

Abstract: In this paper we investigate the forecast performance of nonlinear error-correction models with regime switching. In particular, we focus on threshold and Markov switching error-correction models, where adjustment towards long-run equilibrium is nonlinear and discontinuous. Our simulation study reveals that the gains from using a correctly specified nonlinear model can be considerable, especially if disequilibrium adjustment is strong and|or the magnitude of parameter changes is relatively large. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:24:y:2005:i:2:p:119-138

DOI: 10.1002/for.946

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