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Does noncausality help in forecasting economic time series?

Author

Listed:
  • Henri Nyberg

    (University of Helsinki)

  • Markku Lanne

    (University of Helsinki)

  • Erkka Saarinen

    (University of Helsinki)

Abstract

In this paper, we compare the forecasting performance of univariate noncausal and conventional causal autoregressive models for a comprehensive data set consisting of 170 monthly U.S. macroeconomic and financial time series. The noncausal models consistently outperform the causal models. For a collection of quarterly time series, the improvement in forecast accuracy due to allowing for noncausality is found even greater.

Suggested Citation

  • Henri Nyberg & Markku Lanne & Erkka Saarinen, 2012. "Does noncausality help in forecasting economic time series?," Economics Bulletin, AccessEcon, vol. 32(4), pages 2849-2859.
    • Handle: RePEc:ebl:ecbull:eb-12-00360
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P274.pdf
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    References listed on IDEAS

    as
    1. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
    2. Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2012. "Optimal forecasting of noncausal autoregressive time series," International Journal of Forecasting, Elsevier, vol. 28(3), pages 623-631.
    3. Lanne Markku & Saikkonen Pentti, 2011. "Noncausal Autoregressions for Economic Time Series," Journal of Time Series Econometrics, De Gruyter, vol. 3(3), pages 1-32, October.
    4. Markku Lanne & Arto Luoma & Jani Luoto, 2012. "Bayesian Model Selection And Forecasting In Noncausal Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 812-830, August.
    5. Lanne, Markku & Nyberg, Henri & Saarinen, Erkka, 2011. "Forecasting U.S. Macroeconomic and Financial Time Series with Noncausal and Causal AR Models: A Comparison," MPRA Paper 30254, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Giurcanu, Mihai C., 2015. "A simulation algorithm for non-causal VARMA processes," Statistics & Probability Letters, Elsevier, vol. 98(C), pages 65-72.
    2. Hecq, Alain & Issler, João Victor & Telg, Sean, 2017. "Mixed Causal-Noncausal Autoregressions with Strictly Exogenous Regressors," MPRA Paper 80767, University Library of Munich, Germany.
    3. Nyberg, Henri & Saikkonen, Pentti, 2014. "Forecasting with a noncausal VAR model," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 536-555.
    4. Hecq, A.W. & Lieb, L.M. & Telg, J.M.A., 2015. "Identification of Mixed Causal-Noncausal Models : How Fat Should We Go?," Research Memorandum 035, Maastricht University, Graduate School of Business and Economics (GSBE).
    5. Fries, Sébastien, 2018. "Conditional moments of noncausal alpha-stable processes and the prediction of bubble crash odds," MPRA Paper 97353, University Library of Munich, Germany, revised Nov 2019.
    6. Christian Gourieroux & Joann Jasiak & Michelle Tong, 2021. "Convolution‐based filtering and forecasting: An application to WTI crude oil prices," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(7), pages 1230-1244, November.
    7. Hecq, Alain & Voisin, Elisa, 2021. "Forecasting bubbles with mixed causal-noncausal autoregressive models," Econometrics and Statistics, Elsevier, vol. 20(C), pages 29-45.
    8. Lof, Matthijs & Nyberg, Henri, 2017. "Noncausality and the commodity currency hypothesis," Energy Economics, Elsevier, vol. 65(C), pages 424-433.
    9. Fries, Sébastien & Zakoian, Jean-Michel, 2019. "Mixed Causal-Noncausal Ar Processes And The Modelling Of Explosive Bubbles," Econometric Theory, Cambridge University Press, vol. 35(6), pages 1234-1270, December.
    10. Frédérique Bec & Heino Bohn Nielsen & Sarra Saïdi, 2020. "Mixed Causal–Noncausal Autoregressions: Bimodality Issues in Estimation and Unit Root Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(6), pages 1413-1428, December.
    11. Alain Hecq & Sean Telg & Lenard Lieb, 2017. "Do Seasonal Adjustments Induce Noncausal Dynamics in Inflation Rates?," Econometrics, MDPI, vol. 5(4), pages 1-22, October.
    12. Christian Gouriéroux & Jean-Michel Zakoïan, 2017. "Local explosion modelling by non-causal process," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 79(3), pages 737-756, June.
    13. Nyholm, Juho, 2017. "Residual-based diagnostic tests for noninvertible ARMA models," MPRA Paper 81033, University Library of Munich, Germany.
    14. Jean-Baptiste MICHAU, 2019. "Helicopter Drops of Money under Secular Stagnation," Working Papers 2019-10, Center for Research in Economics and Statistics.

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    More about this item

    Keywords

    Noncausal autoregression; forecast comparison; macroeconomic variables; financial variables;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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