Assessing Forecast Performance in a VECM Model: An Empirical Investigation between Public Expenditures and Economic Growth in Greece
Posted: 11 Feb 2004 Last revised: 11 Feb 2022
Date Written: December 1, 2003
Abstract
This paper is an exercise in applied macroeconomic forecasting. We examine the forecasting power of a vector error-correction model (VECM) that is anchored by a long-run equilibrium relationship between Greek national income and productive public expenditure as suggested by the economic theory. We compare the estimated forecasting values of the endogenous variables to the real-historical values using a stochastic simulation analysis. The simulation results provide new evidence supporting the ability of the model to forecast not only one-period ahead but also many periods into the future.
Keywords: Cointegration, Forecasting, Simulation Analysis, Vector error-correction models
JEL Classification: C15, C32, C53, E0, E6
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