Abstract

In this paper a hybrid genetic algorithm–support vector regression (GA-SVR) model in economic forecasting and macroeconomic variable selection is introduced. The proposed algorithm is applied to the task of forecasting US inflation and unemployment. GA-SVR genetically optimizes the SVR parameters and adapts to the optimal feature subset from a feature space of potential inputs. The feature space includes a wide pool of macroeconomic variables that might affect the two series under study. The forecasting performance of GA-SVR is benchmarked with a random walk model, an autoregressive moving average model, a moving average convergence/divergence model, a multi-layer perceptron, a recurrent neural network and a genetic programming algorithm. In terms of our results, GA-SVR outperforms all benchmark models and provides evidence on which macroeconomic variables can be relevant predictors of US inflation and unemployment in the specific period under study.