A Note on Multi-Step Forecasting with Functional Coefficient Autoregressive Models

This paper presents and evaluates alternative methods for multi-step forecasting using univariate and multivariate functional coefficient autoregressive (FCAR) models. The methods include a simple ``plug-in" approach, a bootstrap-based approach, and a multi-stage smoothing approach, where the functional coefficients are updated at each step to incorporate information from the time series captured in the previous predictions. The three methods are applied to a series of U.S.~GNP and unemployment data to compare performance in practice. We find that the bootstrap-based approach out-performs the other two methods for nonlinear prediction, and that little forecast accuracy is sacrificed using any of the methods if the underlying process is actually linear.

By: Jane L. Harvill, Bonnie K. Ray

Published in: RC23282 in 2004


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