## A large-scale EqCM model and four dVAR type forecasting systems based on differenced data

Section 11.2.1 brought out that even for very simple systems, it is in general difficult to predict which version of the model is going to have the smallest forecast error, the EqCM or the dVAR. While the forecast errors of the dVAR are robust to changes in the adjustment coefficient a and the long-run mean Z, the dVAR forecast error may still turn out to be larger than the EqCM forecast error. Typically, this is the case if the parameter change (included in the EqCM) is small relative to the contribution of the equilibrium-correcting term (which is omitted in the dVAR) at the start of the forecast period.

In the following, we generate multi-period forecasts from the econometric model RIMINI, and compare these to the forecasts from models based on differenced data...

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