IDEAS home Printed from https://ideas.repec.org/a/ags/uersja/137668.html
   My bibliography  Save this article

The Stochastic Coefficients Approach to Econometric Modeling, Part III: Estimation, Stability Testing, and Prediction

Author

Listed:
  • Swamy, P.A.V.B.
  • Conway, Roger K.
  • LeBlanc, Michael

Abstract

In this final article of our three-part series, we demonstrate why stochastic coefficients models are well suited to predict future variables We analyze the forecasting problem and consider various criteria of prediction If a forecaster must choose one from among several coherent predictors, then the choice should be the one with the best track record Decomposing the forecast error shows that stochastic coefficients models can cover more possible sources of prediction error and correct for them The empirical record shows that stichastic coefficients models can substantially reduce out-of-sample forecast errors more than fixed coefficients models Our assessment of coefficient stability tests is they are contradictory , misleading, and without empirical value

Suggested Citation

  • Swamy, P.A.V.B. & Conway, Roger K. & LeBlanc, Michael, 1988. "The Stochastic Coefficients Approach to Econometric Modeling, Part III: Estimation, Stability Testing, and Prediction," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 41(1), pages 1-17.
    • Handle: RePEc:ags:uersja:137668
    DOI: 10.22004/ag.econ.137668
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/137668/files/Swamy_41_1.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.137668?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Conway, Roger & Durst, Ron & Hrubovcak, James & LeBlanc, Michael, 1988. "Economic consequences of tax reform on agricultural investment," Technical Bulletins 312288, United States Department of Agriculture, Economic Research Service.
    2. Roger K. Conway & P. A. V. B. Swamy & Peter Von zur Muehlen, 1984. "The foundations of econometrics: are there any?," Special Studies Papers 182, Board of Governors of the Federal Reserve System (U.S.).
    3. Chow, Gregory C., 1984. "Random and changing coefficient models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 21, pages 1213-1245, Elsevier.
    4. Conway, Roger & Hrubovcak, James & LeBlanc, Michael, 1987. "A forecast evaluation of capital investment in agriculture," Technical Bulletins 312279, United States Department of Agriculture, Economic Research Service.
    5. Kashyap, A. K. & Swamy, P. A. V. B. & Mehta, J. S. & Porter, R. D., 1988. "Further results on estimating linear regression models with partial prior information," Economic Modelling, Elsevier, vol. 5(1), pages 49-57, January.
    6. Wolff, Christian C P, 1987. "Time-Varying Parameters and the Out-of-Sample Forecasting Performance of Structural Exchange Rate Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 87-97, January.
    7. Roger K. Conway & Charles B. Hallahan & Richard P. Stillman & Paul T. Prentice, 1990. "Forecasting livestock prices: Fixed and stochastic coefficients estimation comparisons," Agribusiness, John Wiley & Sons, Ltd., vol. 6(1), pages 15-32.
    8. Conway, Roger K. & Hallahan, Charles B. & Stillman, Richard P. & Prentice, Paul T., 1987. "Forecasting livestock prices: fixed and stochastic coefficients estimation," Technical Bulletins 312275, United States Department of Agriculture, Economic Research Service.
    9. Conway, Roger K. & Gill, Gurmukh S., 1987. "Is the Phillips Curve Stable? A Time-Varying Parameter Approach," Staff Reports 277925, United States Department of Agriculture, Economic Research Service.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gempesaw, Conrado M., II & Tambe, A.M. & Nayga, Rodolfo M., Jr. & Toensmeyer, Ulrich C., 1988. "The Single Index Market Model In Agriculture," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 17(2), pages 1-9, October.
    2. Tanjuakio, Rodolfo V. & Gempesaw, Conrado M., II & Elterich, Joachim G., 1992. "An Optimal Control Framework For Inter - Regional Dairy Policy Analysis," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 24(2), pages 1-11, December.
    3. Julian Ramajo & Miguel A. Marquez, 1998. "Structural change in regional economies: A varying coefficients econometric modeling approach," ERSA conference papers ersa98p189, European Regional Science Association.
    4. Emilio Casetti, 1997. "The Expansion Method, Mathematical Modeling, and Spatial Econometrics," International Regional Science Review, , vol. 20(1-2), pages 9-33, April.
    5. Menzie Chinn & Louis Johnston, 1996. "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries," NBER Working Papers 5709, National Bureau of Economic Research, Inc.
    6. Barbara Rossi, 2013. "Exchange Rate Predictability," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1063-1119, December.
    7. Philippe Bacchetta & Eric van Wincoop & Toni Beutler, 2010. "Can Parameter Instability Explain the Meese-Rogoff Puzzle?," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 6(1), pages 125-173.
    8. Lumengo Bonga-Bonga, 2008. "Modelling the Rand-Dollar Future Spot Rates: The Kalman Filter Approach," The African Finance Journal, Africagrowth Institute, vol. 10(2), pages 60-75.
    9. Rossi, Barbara, 2006. "Are Exchange Rates Really Random Walks? Some Evidence Robust To Parameter Instability," Macroeconomic Dynamics, Cambridge University Press, vol. 10(1), pages 20-38, February.
    10. Joseph P. Byrne & Dimitris Korobilis & Pinho J. Ribeiro, 2018. "On The Sources Of Uncertainty In Exchange Rate Predictability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 329-357, February.
    11. Chinn, Menzie D, 1999. "On the Won and Other East Asian Currencies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(2), pages 113-127, April.
    12. Josh Stillwagon & Peter Sullivan, 2020. "Markov switching in exchange rate models: will more regimes help?," Empirical Economics, Springer, vol. 59(1), pages 413-436, July.
    13. Christopher J. Neely & Lucio Sarno, 2002. "How well do monetary fundamentals forecast exchange rates?," Review, Federal Reserve Bank of St. Louis, vol. 84(Sep), pages 51-74.
    14. Kurt Brännäs & Uno Zackrisson, 1992. "On forecasting of innovations," Quality & Quantity: International Journal of Methodology, Springer, vol. 26(1), pages 95-112, February.
    15. repec:hal:wpspec:info:hdl:2441/2005 is not listed on IDEAS
    16. Rossi, Barbara, 2013. "Advances in Forecasting under Instability," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1203-1324, Elsevier.
    17. Russell Sobel, 1998. "Exchange rate evidence on the effectiveness of United Nations policy," Public Choice, Springer, vol. 95(1), pages 1-25, April.
    18. Ericsson, Neil R., 1992. "Parameter constancy, mean square forecast errors, and measuring forecast performance: An exposition, extensions, and illustration," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 465-495, August.
    19. Kari Heimonen, 2006. "Time-Varying Fundamentals of the Euro-Dollar Exchange Rate," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 385-407.
    20. MacDonald, Ronald & Nagayasu, Jun, 1998. "On the Japanese Yen-U.S. Dollar Exchange Rate: A Structural Econometric Model Based on Real Interest Differentials," Journal of the Japanese and International Economies, Elsevier, vol. 12(1), pages 75-102, March.
    21. William A. Barnett & Chang Ho Kwag, 2011. "Exchange Rate Determination from Monetary Fundamentals: An Aggregation Theoretic Approach," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 5, pages 151-166, World Scientific Publishing Co. Pte. Ltd..

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uersja:137668. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/ersgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.