The Implications for Econometric Modelling of Forecast Failure

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The Implications for Econometric Modelling of Forecast Failure

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Hendry, David F
Doornik, Jurgen A

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Abstract

To reconcile forecast failure with building congruent empirical models, the authors analyze the sources of misprediction. This reveals that an ex ante forecast failure is purely a function of forecast-period events, not determinable from in-sample information. The primary causes are unmodeled shifts in deterministic factors, rather than model misspecification, collinearity, or a lack of parsimony. The authors examine the effects of deterministic breaks on equilibrium-correction mechanisms and consider the role of causal variables. Throughout, Monte Carlo simulation and empirical models illustrate the analysis and support a progressive research strategy based on learning from past failures. Copyright 1997 by Scottish Economic Society.

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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 44 (1997)
Issue (Month): 4 (September)
Pages: 437-61
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Handle: RePEc:bla:scotjp:v:44:y:1997:i:4:p:437-61

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David Hendry & Michael P. Clements, 2001. "Economic Forecasting: Some Lessons from Recent Research," Economics Papers 2002-W11, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
Other versions:
- Hendry, David F & Michael P. Clements, 2002. "Economic Forecasting: Some Lessons from Recent Research," Royal Economic Society Annual Conference 2002 99, Royal Economic Society. [Downloadable!]
- David Hendry & Michael Clements, 2001. "Economic Forecasting: Some Lessons from Recent Research," Economics Series Working Papers 078, University of Oxford, Department of Economics. [Downloadable!]
- David F. Hendry & Michael P. Clements, 2001. "Economic forecasting: some lessons from recent research," Working Paper Series 082, European Central Bank. [Downloadable!]
- Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March. [Downloadable!] (restricted)
David Hendry, 2000. "A General Forecast-error Taxonomy," Econometric Society World Congress 2000 Contributed Papers 0608, Econometric Society. [Downloadable!]
Eitrheim,O. & Jansen,E.S. & Nymoen,R., 2000. "Progress from forecast failure : the Norwegian consumption function," Memorandum 32/2000, Oslo University, Department of Economics. [Downloadable!]
Other versions:
- Øyvind Eitrheim & Eilev S. Jansen & Ragnar Nymoen, 2002. "Progress from forecast failure -- the Norwegian consumption function," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 40-64, June. [Downloadable!] (restricted)
Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2000. "Model Specification and Inflation Forecast Uncertainty," Working Paper Series 1302, Department of Economics, Norwegian University of Science and Technology, revised 29 Jan 2002. [Downloadable!]
Juan Nicolás Hernández, 2006. "Revisión De Los Determinantes Macroeconómicos Del Consumo Total De Los Hogares Para El Caso Colombiano," BORRADORES DE ECONOMIA 003472, BANCO DE LA REPÚBLICA. [Downloadable!]
Other versions:
- Juan Nicolás Hernández, . "Revisión De Los Determinantes Macroeconómicos Del Consumo Total De Los Hogares Para El Caso Colombiano," Borradores de Economia 401, Banco de la Republica de Colombia. [Downloadable!]
- Juan Nicolás Hernández A, 2006. "Revisión de los determinantes macroeconómicos del consumo total de los hogares para el caso colombiano," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE. [Downloadable!]
David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
Other versions:
- David F. Hendry & Michael P. Clements, 2004. "Pooling of forecasts," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 1-31, 06. [Downloadable!] (restricted)
David Hendry & Grayham E. Mizon, 2001. "Forecasting in the Presence of Structural Breaks and Policy Regime Shifts," Economics Papers 2002-W12, Economics Group, Nuffield College, University of Oxford. [Downloadable!]

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