Forecasting in a Small and Unstable Regional Economy Using Regime Shifting Models: The Case of Extremadura

• Published in: Geographical analysis Vol. 35; no. 2; pp. 110 - 132
• Main Authors: Márquez, Miguel Angel, Ramajo, Julian, Hewings, Geoffrey J.D
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-04-2003; Ohio State University Press; John Wiley & Sons, Inc
• Subjects: Bgi / Prodig; Econometric models; Economic activity; Economic aspects; Economic forecasting; Economic instability; Economic models; Evaluation; Forecasts; Geography; Human geography; Methods; Political and economic geography; Regional economics; Regional economy and planning; Spain; Estremadura (Spain); Spain; Econometric model; Regional economy; Economic indicators; Input-output model; Forecast; Economic structure
• ISSN: 0016-7363; 1538-4632
• DOI: 10.1111/j.1538-4632.2003.tb01104.x

We consider forecasting in a small and unstable regional economy subject to structural breaks. In this context, we work with two types of regime‐shifting databased models using cointegration theory. The objective of the present work is to analyze the out‐of‐sample forecasting performance of the two approaches used to construct a short‐term regional econometric model: stochastic and deterministic time varying parameters models. The forecasting experiments will be illustrated by specifying, and estimating an econometric model for Extremadura, a small and unstable region in southwestern Spain.