Abstract
We examine the performance of rolling windows procedures in forecasting inflation. We implement rolling windows augmented Dickey–Fuller (ADF) tests and then conduct a set of Monte Carlo experiments under stylized forms of structural breaks. We find that as long as the nature of inflation is either stationary or non-stationary, popular varying-length window techniques provide little advantage in forecasting over a conventional fixed-length window approach. However, we also find that varying-length window techniques tend to outperform the fixed-length window method under conditions involving a change in the inflation process from stationary to non-stationary, and vice versa. Finally, we investigate methods that can provide early warnings of structural breaks, a situation for which the available rolling windows procedures are not well suited.
Original language | English |
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Pages (from-to) | 827-851 |
Number of pages | 25 |
Journal | Journal of Forecasting |
Volume | 43 |
Issue number | 4 |
Early online date | 14 Jan 2024 |
DOIs | |
Publication status | Published - Jul 2024 |
Keywords
- Chow test
- GARCH model
- Markov switching model
- Monte Carlo experiments
- rolling windows