slide sfdp rotterdam_2014_june
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Presentation in 34th International Symposium on Forecasting, Rotterdam, June 29 - July 2, 2014TRANSCRIPT
Stock-Flow Dynamic Projection
Stock-Flow Dynamic Projection
Mauro Gallegati Xihao Li
Department of Economics and Social Sciences (DiSES)
Universita Politecnica delle Marche
June 30, 2014
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Introduction: I
Consider the Era of Big Data:
Economic Entities (firms/banks) provide accountingstatements for reporting: the balance sheet, theincome statement, the statement of cash flows;
in a faster pace, not only annual reporting but alsopossibly quarterly or monthly reporting.
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Introduction: II
Question: Can we take advantage of this new stream ofeconomic data?
to improve our capability of forecasting andmonitoring macroeconomic fluctuation, or evencrisis?
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Idea: I
Experience from agent-based economic research:economic agents’ micro-level interaction leads tostructural transition in meso-level which results inmacro-level economic fluctuation.
Two types of economic variables:
1 stock variable that measures quantities at a timepoint, e.g. firms’ equity in the balance sheet;
2 flow variable that measures quantities at a timeinterval, e.g. firms’ revenue in the income statement.
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Idea: II
Main idea of Dynamic projection:
Macro-level economic variable = aggregation inmicro-level( stock / flow variable ) + aggregation inmeso-level( the impact of interaction amongeconomic entities ) (∗)
Assume ’as-if’ the economy in the future ceterisparibus, compute dynamic projection for the futurestate of macro-level economic variable by usingmicro-level stock and flow data to measure eachcomponent in formula (∗) .
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
Use the dataset of Japanese firm’s financial statements 1:
for 4599 firms listed in Tokyo Stock Exchange
for 33 years of annual financial statements, i.e.balance sheet, profit and loss statement(PLstatement)2, from the year of 1980 to 2012.
1To use this dataset, the authors acknowledge the support from the European Community Seventh
Framework Programme (FP7/2007-2013) under Socio-economic Sciences and Humanities, grantagreement no. 255987 (FOC-II)
2Profit and loss statement is equivalent to income statement.
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
Consider the following target variables:
stock variable: aggregate equity A from balancesheet
flow variable: aggregate gross profit π from PLstatement.
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
Dynamic projection for one-period-ahead out-of-sampleforecast, to compare with the benchmark of ARIMA:
1 Use data for period of 1980 to 1996 as initialinformation set,
2 at the end of each period t = 1996, ..., 2011, computeone-period-ahead out-of-sample forecast for X = A,or π:
dynamic projection:dp(X )t+1|t = {dp(X )1997|1996, . . . , dp(X )2012|2011}choose the optimal ARIMA according to theBIC(AICc) information criterion, then use the optimalARIMA to conduct the forecast:ARIMA(X )t+1|t = {ARIMA(X )1997|1996, . . . , ARIMA(X )2012|2011}
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
One-period-ahead out-of-sample forecast: aggregate equity
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
120
140
160
180
200
220
240
260
year
aggr
egat
e eq
uity
forecast: ARIMA Vs. dynamic projection
realizationARIMAdynamic projection
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012−20
−10
0
10
20
year
aggr
egat
e eq
uity
forecast error: ARIMA Vs. dynamic projection
ARIMAdynamic projection
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
One-period-ahead out-of-sample forecast: aggregate profit
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
40
45
50
55
60
65
70
75
80
85
90
year
aggr
egat
e gr
oss
prof
it
forecast: ARIMA Vs. dynamic projection
realizationARIMAdynamic projection
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
−10
−5
0
5
10
year
aggr
egat
e gr
oss
prof
it forecast error: ARIMA Vs. dynamic projection
ARIMAdynamic projection
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Example
Diebold-Mariano test.
Null hypothesis: comparing with dp(X )t+1|t ,
ARIMA(X )t+1|t has the same or higher accuracy inforecasting, for X = A, or π.
use linear loss function and quadratic loss function.
for aggregate equity A:p-value Vs. ARIMA with BIC Vs. ARIMA with AICc
Power = 1 0.036 0.028Power = 2 0.042 0.029
for aggregate gross profit π:p-value Vs. ARIMA with BIC Vs. ARIMA with AICc
Power = 1 0.014 0.022Power = 2 0.027 0.033
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Concluding Remark
In our story of aggregate equity and aggregateprofit, dynamic projection shows higher accuracy inone-period-ahead out-of-sample forecast thanARIMA.
Is pure luck or any theory behind?
Working in progress: mathematical inference frommulti-level dynamical system. 3
3See the MatheMACS project, supported under ”ICT-2011.9.7 FET Proactive: Dynamics of Multi-Level
Complex Systems (DyM-CS)”, http://www.mathemacs.eu/.
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam
Stock-Flow Dynamic Projection Introduction Idea Example Concluding Remark
Thank you!
Mauro Gallegati, Xihao Li 34th International Symposium on Forecasting, Rotterdam