We consider the usefulness of the two-regime SETAR model for out-of-sample forecasting, and compare it with a linear AR model. A range of newly-developed forecast evaluation techniques are employed. Our simulation results show that time-series data need to exhibit a substantial degree of non-linearity before the SETAR model is favoured on some of these criteria. We find only weak evidence that a SETAR model of US GNP provides more accurate forecasts than a linear AR model.

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Econometric Institute Research Papers
Erasmus School of Economics

Clements, M., Franses, P. H., & Smith, J. (1999). On SETAR non- linearity and forecasting (No. EI 9914-/A). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/1567