A STRATEGY TO IMPROVE THE FORECASTS BASED ON VAR MODELS USING HODRICK-PRESCOTT FILTER
RRSS 2013 No.5 - Romanian Review of Social Sciences
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Authors:
• Mihaela Simionescu -
Keywords: forecasts, accuracy, VAR models, Hodrick-Prescott filter
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Abstract:
The main goal of this research is to find a suitable strategy to improve the accuracy of predictions based on a VARmodel. The forecasts of annual inflation and unemployment rate made for Romania on the horizon 2010-2012 using a VAR(1) model were improved by proposing new predictions based on a VAR(2) model. But, in this last case the VAR(2) models used differentiated data series for inflation and unemployment rate that were smoothed using Hodrick-Prescott filter. However, the naïve forecasts based on random walk model provided more accurate predictions for both variables.