If you forecast dlog(y) there are no dynamics in the equation, so static=dynamic.
If you forecast y, then forecasts of y depend upon previous values of y (through the dlog), so dynamic and static will differ.
Forecasting
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- Fe ddaethom, fe welon, fe amcangyfrifon
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Re: Forecasting
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Re: Forecasting
Thanks for the response.
I think what I am grappling with is understanding the difference between a forecast of y and forecasting dlog(y) then calculating what forecasts of y are. How exactly does the dynamics get into the equation when forecasting y? Does Eviews estimate an AR() term in the background?
I think what I am grappling with is understanding the difference between a forecast of y and forecasting dlog(y) then calculating what forecasts of y are. How exactly does the dynamics get into the equation when forecasting y? Does Eviews estimate an AR() term in the background?
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Re: Forecasting
If you know what the value of dlog(y) is, you can work out what the value of y is, as long as you know the initial value. You just undo the differences.
The difference between static and dynamic is simply what value of the lag of Y you use.
The difference between static and dynamic is simply what value of the lag of Y you use.
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Re: Forecasting
That is exactly what I have done, and that is what I think is confusing about this process. As my exercise described above is all in-sample, so in both cases dynamic and static the value of y is known. I guess my question is, under the dynamic case, how is the forecast value of y determined and why is it different to the dynamic case when dlog(y) is forecast and then working out what y is?
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Re: Forecasting
Doesn't matter whether Y is known or not, dynamic forecasting will use the estimated values of lagged Y (that's the definition of dynamic forecasting). Static will always use actual values of lagged Y (and if Y isn't known, static forecasting can't be performed).
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