EVIDENCE ON STRUCTURAL INSTABILITY IN MACROECONOMIC TIME-SERIES RELATIONS

An experiment is performed to assess the prevalence of instability in univariate and bivariate macroeconomic time series relations and to as certain whether various adaptive forecasting techniques successfully h andle any such instability. Formal tests for instability and out-of-sa mple forecasts from 16 different models are computed using a sample of 76 representative U.S. monthly postwar macroeconomic time series, con stituting 5,700 bivariate forecasting relations. The tests for instabi lity and the forecast comparisons suggest that there is substantial in stability in a significant fraction of the univariate and bivariate au toregressive models.