Forecasting levels of log variables in vector autoregressions

Forecasting levels of log variables in vector autoregressions

0.00 Avg rating0 Votes
Article ID: iaor20118660
Volume: 27
Issue: 4
Start Page Number: 1108
End Page Number: 1115
Publication Date: Oct 2011
Journal: International Journal of Forecasting
Authors: ,
Keywords: performance evaluation
Abstract:

Sometimes forecasts of the original variable are of interest, even though a variable appears in logarithms (logs) in a system of time series. In that case, converting the forecast for the log of the variable to a naïve forecast of the original variable by simply applying the exponential transformation is not theoretically optimal. A simple expression for the optimal forecast under normality assumptions is derived. However, despite its theoretical advantages, the optimal forecast is shown to be inferior to the naïve forecast if specification and estimation uncertainty are taken into account. Hence, in practice, using the exponential of the log forecast is preferable to using the optimal forecast.

Reviews

Required fields are marked *. Your email address will not be published.