IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v40y2008i13p1707-1721.html
   My bibliography  Save this article

Time-series model forecasts and structural breaks: evidence from Spanish pre-EMU interest rates

Author

Listed:
  • Jose Luis Fernandez-Serrano
  • M. Dolores Robles-Fernandez

Abstract

Analysis of the future behaviour of economic variables can be biased if structural breaks are not considered. When these structural breaks are present, the in-sample fit of a model gives us a poor guide to ex ante forecast performance. This problem is true for both univariate and multivariate analysis and can be extremely important when co-integration relationships are analysed. The main goal of this article is to analyse the impact of structural breaks on forecast accuracy evaluation. We focus on forecasting several interest rates from the Spanish interbank money market. In order to carry out the analysis, we perform two forecasting exercises: (a) without structural breaks and (b) when structural breaks are explicitly considered. We use new sequential methods in order to estimate change-points in an endogenous way. This method allows us to detect structural breaks in all four rates in May 1993. However, the effects of these breaks are not very strong, since we found scarce gains in forecasting accuracy when the structural breaks are included in the models.

Suggested Citation

  • Jose Luis Fernandez-Serrano & M. Dolores Robles-Fernandez, 2008. "Time-series model forecasts and structural breaks: evidence from Spanish pre-EMU interest rates," Applied Economics, Taylor & Francis Journals, vol. 40(13), pages 1707-1721.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:13:p:1707-1721
    DOI: 10.1080/00036840600895640
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840600895640
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036840600895640?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Perron, Pierre & Vogelsang, Timothy J., "undated". "Level Shifts and Purchasing Power Parity," Instructional Stata datasets for econometrics levshift, Boston College Department of Economics.
    2. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    3. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
    4. Bekaert, Geert & Hodrick, Robert J. & Marshall, David A., 2001. "Peso problem explanations for term structure anomalies," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 241-270, October.
    5. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    6. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    7. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-250, July.
    8. Richard Deaves, 1996. "Forecasting Canadian Short-Term Interest Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 615-634, August.
    9. Pagan, A.R. & Hall, A.D. & Martin, V., 1995. "Modelling the Term Structure," Papers 284, Australian National University - Department of Economics.
    10. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    12. Dahlquist, Magnus & Gray, Stephen F., 2000. "Regime-switching and interest rates in the European monetary system," Journal of International Economics, Elsevier, vol. 50(2), pages 399-419, April.
    13. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    14. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
    15. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-126, February.
    16. James H. Stock & Mark W. Watson, 1998. "A Comparison of Linear and Nonlinear Univariate Models for Forecasting Macroeconomic Time Series," NBER Working Papers 6607, National Bureau of Economic Research, Inc.
    17. Bidarkota, Prasad V., 1998. "The comparative forecast performance of univariate and multivariate models: an application to real interest rate forecasting," International Journal of Forecasting, Elsevier, vol. 14(4), pages 457-468, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Juan Jiménez-Martin & M. Robles-Fernandez, 2010. "PPP: Delusion or Reality? Evidence from a Nonlinear Analysis," Open Economies Review, Springer, vol. 21(5), pages 679-704, November.
    2. Kosei Fukuda, 2011. "Cointegration rank switching model: an application to forecasting interest rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(5), pages 509-522, August.

    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. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2013. "International Labour Force Participation Rates By Gender: Unit Root Or Structural Breaks?," Bulletin of Economic Research, Wiley Blackwell, vol. 65, pages 142-164, May.
    2. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2013. "International Labour Force Participation Rates By Gender: Unit Root Or Structural Breaks?," Bulletin of Economic Research, Wiley Blackwell, vol. 65, pages 142-164, May.
    3. Franses,Philip Hans & Dijk,Dick van & Opschoor,Anne, 2014. "Time Series Models for Business and Economic Forecasting," Cambridge Books, Cambridge University Press, number 9780521520911, September.
    4. Adewuyi, Adeolu O. & Ogebe, Joseph O., 2019. "The validity of uncovered interest parity: Evidence from african members and non-member of the organisation of petroleum exporting countries (OPEC)," Economic Modelling, Elsevier, vol. 82(C), pages 229-249.
    5. Kellard, Neil & Wohar, Mark E., 2006. "On the prevalence of trends in primary commodity prices," Journal of Development Economics, Elsevier, vol. 79(1), pages 146-167, February.
    6. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    7. Gary L. Shelley & Frederick H. Wallace, 2004. "Testing for Long Run Neutrality of Money in Mexico," Macroeconomics 0402003, University Library of Munich, Germany.
    8. Marashdeh, Hazem & Wilson, E.J., 2005. "Structural Changes in the Middle East Stock Markets: The case of Israel and Arab Countries," Economics Working Papers wp05-22, School of Economics, University of Wollongong, NSW, Australia.
    9. Guzel, Adnan & Ozdemir, Zeynel Abidin, 2011. "The Feldstein-Horioka puzzle in the presence of structural shifts: The case of Japan versus the USA," Research in International Business and Finance, Elsevier, vol. 25(2), pages 195-202, June.
    10. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    11. John D. Levendis, 2018. "Time Series Econometrics," Springer Texts in Business and Economics, Springer, number 978-3-319-98282-3, December.
    12. José Luis Fernández Serrano & Mª Dolores Robles Fernández, 2001. "Structural Breaks and interest rates forecast: a sequential approach," Documentos de Trabajo del ICAE 0110, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    13. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
    14. Begona Eguía & Cruz Echevarría, "undated". "Existe alguna relación entre las tasas de desempleo y la estructura demográfica en España?," Studies on the Spanish Economy 11, FEDEA.
    15. Popp, Stephan, 2007. "Identification of the true break date in innovational outlier unit root tests," IBES Diskussionsbeiträge 152, University of Duisburg-Essen, Institute of Business and Economic Studie (IBES).
    16. Marriott, John & Newbold, Paul, 2000. "The strength of evidence for unit autoregressive roots and structural breaks: A Bayesian perspective," Journal of Econometrics, Elsevier, vol. 98(1), pages 1-25, September.
    17. Alexeev, Vitali & Maynard, Alex, 2012. "Localized level crossing random walk test robust to the presence of structural breaks," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3322-3344.
    18. Ozdemir, Zeynel Abidin & Gokmenoglu, Korhan & Ekinci, Cagdas, 2013. "Persistence in crude oil spot and futures prices," Energy, Elsevier, vol. 59(C), pages 29-37.
    19. Monojit Chatterji & Homagni Choudhury, 2010. "The Changing Inter-Industry Wage Structure of the Organised Manufacturing Sector in India, 1973-74 to 2003-04," Dundee Discussion Papers in Economics 244, Economic Studies, University of Dundee.
    20. Travaglini, Guido, 2007. "The U.S. Dynamic Taylor Rule With Multiple Breaks, 1984-2001," MPRA Paper 3419, University Library of Munich, Germany, revised 15 Jun 2007.

    More about this item

    Statistics

    Access and download statistics

    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:taf:applec:v:40:y:2008:i:13:p:1707-1721. 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    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.