Prague Economic Papers 2021, 30(3):336-357 | DOI: 10.18267/j.pep.765

Random Forest as a Model for Czech Forecasting

Katerina Gawthorpe ORCID...a
a Prague University of Economy and Business, Prague, Czech Republic

Random forest models have recently gained popularity for economic forecasting. Earlier studies demonstrated their potential to provide early warnings of recession and serve as a competitive method to older prediction models. This study offers the first evaluation of the random forest forecast for the Czech economy. The one-step-ahead forecasting results show high accuracy on the Czech data and are proven to outperform forecasts from the Czech Ministry of Finance and the Czech National Bank. The following multi-step random forest forecast, estimated for the next four quarters, shows results similar to those from the central institutions. The main difference stems from the household and industrial confidence variables, which significantly impact on the random forest forecast. The variable-importance analysis further emphasizes the soft variables as valuable determinants for Czech forecasting. Overall, the findings motivate other forecasters to exercise this method.

Keywords: Random forest, Czech Republic, forecast, regression tree
JEL classification: C32, C63, E37

Received: March 18, 2020; Revised: October 31, 2020; Accepted: December 7, 2020; Prepublished online: February 10, 2021; Published: June 11, 2021  Show citation

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Gawthorpe, K. (2021). Random Forest as a Model for Czech Forecasting. Prague Economic Papers, 30(3), 336-357. doi: 10.18267/j.pep.765
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