Palgrave Handbook of Econometrics: Applied Econometrics

Gunnar Bårdsen and Ragnar Nymoen 909

2003

–2

2.0

1.5

2.5

3.5

3.0

4.0

4.5

2004 2005 2006 2007

(a) Unemployment rate (b) GDP growth rate (c) Real credit growth

2003

0

2

6

4

8

10

(^20042005200620072003)
0
4
8
16
12
2004 2005 2006 2007
Figure 17.16 Dynamic dEqCM forecasts 2007(1)–2007(4), with end-of-sample for estimation
of parameters in 2006(4)
Actual values are shown by solid lines, and forecasts by dashed lines. The distance between the two dotted
lines represents 70% prediction intervals.
10.0
7.5
2.5
2006 2007
NAM one-step forecasts GDP growth
2008
5.0
15.0
12.5
10.0
2006 2007
NAM one-step forecasts credit growth
2008
15.0
12.5
10.0
2006 2007 2008
10.0
7.5
2.5
2006 2007
dECM one-step forecasts GDP growth dECM one-step forecasts credit growth
2008
5.0
Figure 17.17 One-step forecast from NAM and a partial dEqCM
The forecasts are the dashed lines. The distance between the dotted lines represents 70% prediction
intervals.
Non-stationarity due to structural breaks in functional relationships of the
economy seem to represent the real challenge to macroeconometric modeling.
Structural breaks in the forecast period are particularly harmful since they are
untraceable and will make the model forecasts go toward pre-break steady-state
relationships. When the sample period is extended, structural breaks represent
valuable sample information that provide power to tests of economic hypotheses,