A Time Series Approach to Econometric Models of Taiwan’s Economy

Using quarterly Taiwan economic data, we demonstrate that deeper understanding of relations between variables and substantial gains in forecasting can be obtained by applying econometric and statistical tools to the traditional macroeconometric models. The improvement in forecasting accuracy is illustrated by outof-sample forecasts, and the models employed in the comparison include univariate time series models, macro-econometric models and combined models in which time series techniques are used to describe the dynamic structure of the residual series of econometric models. The paper also considers various issues related to forecasting such as aggregation and model misspecification.