Abstract:This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 2 ECO/WKP(2020)1 ADAPTIVE TREES: A NEW APPROACH TO ECONOMIC FORECASTING Unclassified OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the aut… Show more
Random forest models have recently gained popularity for economic forecasting. Earlier studies demonstrated their potential to provide early warnings of recession and serve as a competitive method to older prediction models. This study offers the first evaluation of the random forest forecast for the Czech economy. The one-step-ahead forecasting results show high accuracy on the Czech data and are proven to outperform forecasts from the Czech Ministry of Finance and the Czech National Bank. The following multistep random forest forecast, estimated for the next four quarters, shows results similar to those from the central institutions. The main difference stems from the household and industrial confidence variables, which significantly impact on the random forest forecast. The variable-importance analysis further emphasizes the soft variables as valuable determinants for Czech forecasting. Overall, the findings motivate other forecasters to exercise this method.
Random forest models have recently gained popularity for economic forecasting. Earlier studies demonstrated their potential to provide early warnings of recession and serve as a competitive method to older prediction models. This study offers the first evaluation of the random forest forecast for the Czech economy. The one-step-ahead forecasting results show high accuracy on the Czech data and are proven to outperform forecasts from the Czech Ministry of Finance and the Czech National Bank. The following multistep random forest forecast, estimated for the next four quarters, shows results similar to those from the central institutions. The main difference stems from the household and industrial confidence variables, which significantly impact on the random forest forecast. The variable-importance analysis further emphasizes the soft variables as valuable determinants for Czech forecasting. Overall, the findings motivate other forecasters to exercise this method.
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