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Comparison of Robust and Varying Parameter Estimates of a Macroeconometric Model

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  • Thomas F. Cooley

Abstract

Four estimators of econometric models are compared for predictive accuracy. Two estimators assume that the parameters of the equations are subject to variation over time. The first of these, the adaptive regression technique (ADR), assumes that the intercept varies overtime, while the other, a varying-parameter regression technique (VPR), assumes that all parameters may be subject to variation. The other two estimators are ordinary least squares (OLS) and a robust estimator that gives less weight to large residuals. The vehicle for these experiments is the econometric model developed by Ray Fair. The main conclusion is that varying parameter techniques appear promising for the estimation of econometric models. They are clearly superior in the present context for short term forecasts. Of the two varying parameter techniques considered, ADR is superior over longer prediction intervals.

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  • Thomas F. Cooley, 1974. "Comparison of Robust and Varying Parameter Estimates of a Macroeconometric Model," NBER Working Papers 0056, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0056
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    1. Alexander H. Sarris, 1973. "A Bayesian Approach To Estimation Of Time-Varying Regression Coefficients," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 2, number 4, pages 501-523, National Bureau of Economic Research, Inc.
    2. Cooley, Thomas F & Prescott, Edward C, 1973. "Tests of an Adaptive Regression Model," The Review of Economics and Statistics, MIT Press, vol. 55(2), pages 248-256, May.
    3. Cooley, Thomas F & Prescott, Edward C, 1973. "An Adaptive Regression Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 364-371, June.
    4. Fair, Ray C, 1973. "A Comparison of Alternative Estimators of Macroeconomic Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 261-277, June.
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    1. Various, 1975. "Staff Reports on Research Under Way," NBER Chapters, in: Understanding Economic Change, pages 9-120, National Bureau of Economic Research, Inc.

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