Macroeconomic forecasting during the Great Recession: The return of non-linearity?

The debate on the forecasting ability in economics of non-linear models has a long history, and the Great Recession provides us with an opportunity for a re-assessment of the forecasting performance of several classes of non-linear models, widely used in applied macroeconomic research. In this paper, we carry out an extensive analysis over a large quarterly database consisting of major real, nominal and financial variables for a large panel of OECD member countries. It turns out that, on average, non-linear models do not outperform standard linear specifications, even during the Great Recession period. In spite of this result, non-linear models enable to improve forecast accuracy in almost 40% of cases. Especially some countries and/or variables appear to be more adapted to non-linear forecasting.