A comparative study of forecasting methods using real-life econometric series data

Abstract Paper aims This paper presents a comparative evaluation of different forecasting methods using two artificial neural networks (Multilayer Perceptron network and Radial Basis Functions Neural Network) and the Gaussian process regression. Originality Due to the current world scenario, solving economic problems has become extremely important. Artificial neural networks are one of the most promising tools to forecast economic trends and are being widely studied in economic analyses. Therefore, due to the concerns about the performance of different forecasting methods to solve economic problems, this study contributes with an example of the forecasting performance of artificial neural network models compared with Gaussian process regression using Nelson-Plosser and U.S. macroeconomic real-life data sets. Research method Two real-life data sets were used to evaluate the forecasting methods proposed in this paper. These data sets were normalised to values between zero and one. After that, the data training was performed and, once it was built, a model was used to generate forecasts. Thus, observations were made to verify how accurately the fitted model forecast the values. Main findings The results obtained from the study show that, for all forecasting horizons, multi-layer perceptron networks and Gaussian process regression models had the most satisfactory results. On the other hand, the radial basis functions neural network model was unsuitable for econometric data. Implications for theory and practice This study contributes to a discussion about artificial neural networks and Gaussian process regression models for econometric forecasting. Although artificial neural networks are mainly used in economic analyses, the results showed that not all models, such as radial basis functions neural networks, present good results. In addition, the regression of the Gaussian process showed promising results to forecast econometric data.