Unit roots in the Nelson-Plosser data: Do they matter for forecasting?

textabstractIn this paper we compare two univariate time series models, i.e. one with and one without an imposed unit root, in a forecasting experiment for the fourteen annually observed US data analyzed by Nelson and Plosser (1982, Journal of Monetary Economics 10, 139–162). Our main result is that the unit root model is regularly preferred. This result holds for a variety of sample sizes and forecast horizons as well as for one-step and multi-step ahead forecasts