Economics, Econometrics and Finance
4 years ago

Non-linear models fail to outperform linear ones in economic forecasting.

International Journal of Forecasting
Macroeconomic forecasting during the Great Recession: The return of non-linearity?
Laurent Ferrara, Massimiliano Marcellino, Matteo Mogliani

Paper Summary

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Non-linear models were tested for their ability to predict economic trends during the Great Recession. While they didn't perform better overall than linear models, they did improve accuracy in about 40-45% of cases. This suggests that the recession was caused by big shocks, not necessarily increased non-linearity in economic processes.