Nonlinear models struggle to outperform VARs, Azerbaijani paper finds
Models can still be useful for producing inflation probability distributions
Nonlinear forecasting models perform poorly against models based on autoregressive and vector autoregressive (VAR) measures, according to a working paper published in April by the Central Bank of Azerbaijan.
Forecasting inflation in post-oil boom years: a case for non-linear models? by Vugar Ahmadov, Shaig Adigozalov, Salman Huseynov, Fuad Mammadov and Vugar Rahimov is the first in a new working paper series published by the central bank.
The authors test various nonlinear models, including
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