Forecasts are only as good as the data behind them. But macroeconomic data are revised, often significantly, as time passes and new source data become available and conceptual changes are made. How is forecasting influenced by the fact that data are revised? To answer this question, we begin with the example of the index of leading economic indicators to illustrate the real-time data issues. Then we look at the data that have been developed for U.S. data revisions, called the "Real-Time Data Set for Macroeconomists" and show their basic features, illustrating the magnitude of the revisions and thus motivating their potential influence on forecasts and on forecasting models. The data set consists of a set of data vintages, where a data vintage refers to a date at which someone observes a time series of data; so the data vintage September 1974 refers to all the macroeconomic time series available to someone in September 1974. Next, we examine experiments using that data set by Stark and Croushore (2002), Journal of Macroeconomics 24, 507-531, to illustrate how the data revisions could have affected reasonable univariate forecasts. In doing so, we tackle the issues of what variables are used as "actuals" in evaluating forecasts and we examine the techniques of repeated observation forecasting, illustrate the differences in U.S. data of forecasting with real-time data as opposed to latest-available data, and examine the sensitivity to data revisions of model selection governed by various information criteria. Third, we look at the economic literature on the extent to which data revisions affect forecasts, including discussions of how forecasts differ when using first-available compared with latest-available data, whether these effects are bigger or smaller depending on whether a variable is being forecast in levels or growth rates, how much influence data revisions have on model selection and specification, and evidence on the predictive content of variables when subject to revision. Given that data are subject to revision and that data revisions influence forecasts, what should forecasters do? Optimally, forecasters should account for data revisions in developing their forecasting models. We examine various techniques for doing so, including state-space methods. The focus throughout this chapter is on papers mainly concerned with model development - trying to build a better forecasting model, especially by comparing forecasts from a new model to other models or to forecasts made in real time by private-sector or government forecasters.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Download reference. The following formats are available: HTML,
plain text,
BibTeX,
RIS (EndNote),
ReDIF This chapter was published in: G. Elliott & C. Granger & A. Timmermann (ed.) , Elsevier, chapter 17, pages 961-982, 2006.
For technical questions regarding this item, or to correct its listing, contact: (Heidi Boesdal).
Related research
This chapter was published in the following book, which is listed on IDEAS: G. Elliott & C. Granger & A. Timmermann (ed.), 2006.
"Handbook of Economic Forecasting,"
Handbook of Economic Forecasting,
Elsevier,
edition 1, volume 1, number 1.
[Downloadable!] (restricted) Keywords:
Find related papers by JEL classification: B0 - Schools of Economic Thought and Methodology - - General