Macroeconomic Modelling and Forecasting UsingNon-Stationary Data

Important aspects of macroeconomic modelling andforecasting in the presence of non-stationarity areexamined in this book. Three forms ofnon-stationarity are assessed: explosive,structural-break, and unit root non-stationarity.First, testing for unit-root non-stationarity in thepresence of explosive non-stationarity is considered.Numerical difficulties are circumvented usingapproximations before the finite-sample properties ofthe unit-root test are assessed. Secondly the use ofmodel averaging given non-stationarity isinvestigated. While model averaging can providecompetitive forecasts and parameter estimates,selection is required, and often a single selectedmodel will perform best. Because averaging does notavoid the need to select, methods of selection arediscussed. Third, regression models in the presenceof unit-root non-stationarity are estimated. Previousempirical studies of monetary and fiscal policieshave made little reference to non-stationarity. Acointegratedvector-autoregressive model is used to combat thisand evidence for policy interactions is found.