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Activity Number: 643
Type: Contributed
Date/Time: Thursday, August 13, 2015 : 8:30 AM to 10:20 AM
Sponsor: Business and Economic Statistics Section
Abstract #315904
Title: Imposing Frequency-Domain Restrictions on Time-Domain Forecasts
Author(s): Marek Chudy* and Erhard Reschenhofer
Companies: University of Vienna and University of Vienna
Keywords: Forecasting ; step function ; spectral density ; model selection ; band regression
Abstract:

This paper proposes a new model selection criterion for choosing the number of discontinuity points in piecewise constant frequency-domain models for stationary time series. In order to facilitate the use of this criterion in practice, penalties are calculated for various levels of complexity and sample sizes using an efficient algorithm which is based on the principle of dynamic programming. Moreover, it is shown how the selected frequency-domain model can be used to estimate in a first step the autocovariances via their spectral representation and then, in a second step, also the parameters of autoregressive models via the Durbin-Levinson algorithm. In an empirical study with macroeconomic data, the forecasts based on these restricted autoregressive models strikingly outperform conventional ARMA forecasts. Furthermore, we propose the developments of band-regression models for forecasting purposes, namely a simple method for shrinking the parameter estimates as well as a method for the automatic selection of the underlying frequency band. The results of the empirical study show that this forecasting approach outperforms conventional forecasting methods.


Authors who are presenting talks have a * after their name.

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