Model averaging in Markov-Switching models: predicting national recessions with regional data
Series: Working Papers. 1727.
Author: Pierre Guérin and Danilo Leiva-Leon.
Published in: Economics Letters
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Abstract
This paper introduces new weighting schemes for model averaging when one is interested in combining discrete forecasts from competing Markov-switching models. In the empirical application, we forecast U.S. business cycle turning points with statelevel employment data. We nd that forecasts obtained with our best combination scheme provide timely updates of U.S. recessions in that they outperform a notoriously dicult benchmark to beat (the anxious index from the Survey of Professional Forecasters) for short-term forecasts.