This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

How Far Can Forecasting Models Forecast? Forecast Content Horizons for Some Important Macroeconomic Variables

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
John W. Galbraith
Greg Tkacz

Additional information is available for the following registered author(s):

Abstract

For stationary transformations of variables, there exists a maximum horizon beyond which forecasts can provide no more information about the variable than is present in the unconditional mean. Meteorological forecasts, typically excepting only experimental or exploratory situations, are not reported beyond this horizon; by contrast, little generally accepted information about such maximum horizons is available for economic variables. The authors estimate such content horizons for a variety of economic variables, and compare these with the maximum horizons that they observe reported in a large sample of empirical economic forecasting studies. The authors find that many published studies provide forecasts exceeding, often by substantial margins, their estimates of the content horizon for the particular variable and frequency. The authors suggest some simple reporting practices for forecasts that could potentially bring greater transparency to the process of making and interpreting economic forecasts.

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.

File URL: http://www.bankofcanada.ca/en/res/wp/2007/wp07-1.pdf
File Format:
File Function:
Download Restriction: no

Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 07-1.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 45 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocawp:07-1

Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613-782-8899
Fax: 613-782-8874
Web page: http://www.bank-banque-canada.ca/

Order Information:
Postal: Publications Distribution, Bank of Canada, 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Email:
Web: http://www.bank-banque-canada.ca/en/publication/pub_res.html

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: Econometric and statistical methods Business fluctuations and cycles

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Philip Hans Franses & Yoshinori Kawasaki, 2004. "Do seasonal unit roots matter for forecasting monthly industrial production?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(2), pages 77-88. [Downloadable!]
  2. McCrae, Michael, et al, 2002. "Can Cointegration-Based Forecasting Outperform Univariate Models? An Application to Asian Exchange Rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(5), pages 355-80, August.
  3. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September. [Downloadable!] (restricted)
  4. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May. [Downloadable!] (restricted)
    Other versions:
  5. Man, K. S., 2003. "Long memory time series and short term forecasts," International Journal of Forecasting, Elsevier, vol. 19(3), pages 477-491. [Downloadable!] (restricted)
  6. Canova, Fabio & Ciccarelli, Matteo, 2004. "Forecasting and turning point predictions in a Bayesian panel VAR model," Journal of Econometrics, Elsevier, vol. 120(2), pages 327-359, June. [Downloadable!] (restricted)
    Other versions:
  7. Charles S. Bos & Philip Hans Franses & Marius Ooms, 2001. "Inflation, Forecast Intervals and Long Memory Regression Models," Tinbergen Institute Discussion Papers 01-029/4, Tinbergen Institute. [Downloadable!]
    Other versions:
  8. Eitrheim, Oyvind & Husebo, Tore Anders & Nymoen, Ragnar, 1999. "Equilibrium-correction vs. differencing in macroeconometric forecasting," Economic Modelling, Elsevier, vol. 16(4), pages 515-544, December. [Downloadable!] (restricted)
  9. Duy, Timothy A. & Thoma, Mark A., 1998. "Modeling and Forecasting Cointegrated Variables: Some Practical Experience," Journal of Economics and Business, Elsevier, vol. 50(3), pages 291-307, May. [Downloadable!] (restricted)
  10. Stockton, David J & Glassman, James E, 1987. "An Evaluation of the Forecast Performance of Alternative Models of Inflation," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 108-17, February. [Downloadable!] (restricted)
  11. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October. [Downloadable!] (restricted)
  12. Sarantis, Nicholas, 1999. "Modeling non-linearities in real effective exchange rates," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 27-45, January. [Downloadable!] (restricted)
  13. Schunk, Donald L, 2001. "The Relative Forecasting Performance of the Divisia and Simple Sum Monetary Aggregates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 272-83, May.
  14. Wen, Yi & Zeng, Bing, 1999. "A simple nonlinear filter for economic time series analysis," Economics Letters, Elsevier, vol. 64(2), pages 151-160, August. [Downloadable!] (restricted)
  15. Gary Koop & Simon Potter, 2003. "Forecasting in Large Macroeconomic Panels using Bayesian Model Averaging," Discussion Papers in Economics 04/16, Department of Economics, University of Leicester. [Downloadable!]
    Other versions:
  16. Chung-Shu Wu & Ruey S. Tsay, 2003. "Forecasting with leading indicators revisited," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(8), pages 603-617. [Downloadable!]
  17. Chan Huh, 1996. "Some evidence on the efficacy of the UK inflation targeting regime: an out-of-sample forecast approach," International Finance Discussion Papers 565, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  18. Vivien Guiraud & Michel Terraza & Olivier Darné, 2004. "Forecasts of the seasonal fractional integrated series," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 1-17. [Downloadable!]
  19. Franses, Philip Hans & van Dijk, Dick, 2005. "The forecasting performance of various models for seasonality and nonlinearity for quarterly industrial production," International Journal of Forecasting, Elsevier, vol. 21(1), pages 87-102. [Downloadable!] (restricted)
    Other versions:
  20. Mark W. Watson & James H. Stock, 2004. "Combination forecasts of output growth in a seven-country data set," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 405-430. [Downloadable!]
  21. Pena, Daniel & Poncela, Pilar, 2004. "Forecasting with nonstationary dynamic factor models," Journal of Econometrics, Elsevier, vol. 119(2), pages 291-321, April. [Downloadable!] (restricted)
  22. Francis X. Diebold & Canlin Li, 2003. "Forecasting the Term Structure of Government Bond Yields," NBER Working Papers 10048, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  23. Maximo Camacho, 2004. "Vector smooth transition regression models for US GDP and the composite index of leading indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(3), pages 173-196. [Downloadable!]
  24. Boero, Gianna & Marrocu, Emanuela, 2004. "The performance of SETAR models: a regime conditional evaluation of point, interval and density forecasts," International Journal of Forecasting, Elsevier, vol. 20(2), pages 305-320. [Downloadable!] (restricted)
    Other versions:
  25. repec:taf:emetrv:v:24:y:2005:i:4:p:369-404 is not listed on IDEAS
  26. Elliott, Graham & Timmermann, Allan, 2004. "Optimal forecast combinations under general loss functions and forecast error distributions," Journal of Econometrics, Elsevier, vol. 122(1), pages 47-79, September. [Downloadable!] (restricted)
    Other versions:
  27. Hubrich, Kirstin, 2005. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," International Journal of Forecasting, Elsevier, vol. 21(1), pages 119-136. [Downloadable!] (restricted)
    Other versions:
  28. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November. [Downloadable!] (restricted)
    Other versions:
  29. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December. [Downloadable!] (restricted)
  30. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
    Other versions:
  31. Carruth, A.A. & Hooker, M.A. & Oswald, A.J., 1998. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," The Warwick Economics Research Paper Series (TWERPS) 496, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  32. Michael F. Bleaney, 1998. "Exchange Rate Forecasts at Long Horizons: Are Error-Correction Models Superior?," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 852-864, November. [Downloadable!] (restricted)
  33. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2003. "Do financial variables help forecasting inflation and real activity in the euro area?," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1243-1255, September. [Downloadable!] (restricted)
    Other versions:
  34. Laura Brown & Saeed Moshiri, 2004. "Unemployment variation over the business cycles: a comparison of forecasting models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(7), pages 497-511. [Downloadable!]
  35. Thomas Lindh, 2004. "Medium-term forecasts of potential GDP and inflation using age structure information," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(1), pages 19-49. [Downloadable!]
    Other versions:
  36. Joseph, Nathan Lael, 2001. "Model Specification and Forecasting Foreign Exchange Rates with Vector Autoregressions," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(7), pages 451-84, November.
  37. Franses, Philip Hans & Ooms, Marius, 1997. "A periodic long-memory model for quarterly UK inflation," International Journal of Forecasting, Elsevier, vol. 13(1), pages 117-126, March. [Downloadable!] (restricted)
  38. Choi, Jae-Young & Ratti, Ronald A., 2000. "The Predictive Power of Alternative Indicators of Monetary Policy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 581-610, October. [Downloadable!] (restricted)
  39. Tambakis, Demosthenes N & Van Royen, Anne-Sophie, 2002. "Conditional Predictability of Daily Exchange Rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(5), pages 301-15, August.
  40. William W. Chow, 2004. "An outlier robust hierarchical Bayes model for forecasting: the case of Hong Kong," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(2), pages 99-114. [Downloadable!]
  41. Margaret R. Maier & Nigel Meade, 2003. "Evidence of long memory in short-term interest rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(8), pages 553-568. [Downloadable!]
  42. Clements, M.P. & Hendry, D.F., 1992. "Forecasting in Cointegrated Systems," Economics Series Working Papers 99139, University of Oxford, Department of Economics.
  43. Garcia-Ferrer, Antonio & Poncela, Pilar, 2002. "Forecasting European GNP Data through Common Factor Models and Other Procedures," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(4), pages 225-44, July.
  44. De Gooijer, Jan G. & Ray, Bonnie K. & Krager, Horst, 1998. "Forecasting exchange rates using TSMARS," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 513-534, June. [Downloadable!] (restricted)
  45. Boothe, Paul & Glassman, Debra, 1987. "Comparing exchange rate forecasting models : Accuracy versus profitability," International Journal of Forecasting, Elsevier, vol. 3(1), pages 65-79. [Downloadable!] (restricted)
  46. Qi, Min & Wu, Yangru, 2003. "Nonlinear prediction of exchange rates with monetary fundamentals," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 623-640, December. [Downloadable!] (restricted)
  47. Clements, Michael P. & Galvao, Ana Beatriz, 2004. "A comparison of tests of nonlinear cointegration with application to the predictability of US interest rates using the term structure," International Journal of Forecasting, Elsevier, vol. 20(2), pages 219-236. [Downloadable!] (restricted)
  48. Giorgio Valente & Lucio Sarno, 2004. "Comparing the accuracy of density forecasts from competing models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(8), pages 541-557. [Downloadable!]
    Other versions:
  49. Yin-Wong Cheung & Menzie D. Chinn, 1997. "Integration, Cointegration and the Forecast Consistency of Structural Exchange Rate Models," NBER Working Papers 5943, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  50. Richard Clarida & Lucio Sarno & Mark Taylor & Giorgio Valente, 2001. "The Out-of-Sample Success of Term Structure Models as Exchange Rate Predictors: A Step Beyond," NBER Working Papers 8601, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  51. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  52. Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
  53. Najand, Mohammad & Bond, Charlotte, 2000. "Structural models of exchange rate determination," Journal of Multinational Financial Management, Elsevier, vol. 10(1), pages 15-27, January. [Downloadable!] (restricted)
  54. Meade, Nigel, 2002. "A comparison of the accuracy of short term foreign exchange forecasting methods," International Journal of Forecasting, Elsevier, vol. 18(1), pages 67-83. [Downloadable!] (restricted)
  55. Clements, Michael P. & Smith, Jeremy, 2001. "Evaluating forecasts from SETAR models of exchange rates," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 133-148, February. [Downloadable!] (restricted)
  56. Sune Karlsson & Tor Jacobson, 2004. "Finding good predictors for inflation: a Bayesian model averaging approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(7), pages 479-496. [Downloadable!]
    Other versions:
  57. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund. [Downloadable!]
  58. Villani, Mattias, 2001. "Bayesian prediction with cointegrated vector autoregressions," International Journal of Forecasting, Elsevier, vol. 17(4), pages 585-605. [Downloadable!] (restricted)
  59. Gordon R. Richards, 2004. "A fractal forecasting model for financial time series," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(8), pages 586-601. [Downloadable!]
  60. Woon Gyu Choi, 2002. "The Inverted Fisher Hypothesis: Inflation Forecastability and Asset Substitution," IMF Staff Papers, Palgrave Macmillan Journals, vol. 49(2), pages 4. [Downloadable!] (restricted)
  61. Hurvich, Clifford M., 2002. "Multistep forecasting of long memory series using fractional exponential models," International Journal of Forecasting, Elsevier, vol. 18(2), pages 167-179. [Downloadable!] (restricted)
  62. Robertson, Donald, 1992. "Term Structure Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 102(414), pages 1083-93, September. [Downloadable!] (restricted)
  63. Siddique, Akhtar & Sweeney, Richard J., 1998. "Forecasting real exchange rates1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 63-70, February. [Downloadable!] (restricted)
  64. Richard H. Clarida & Mark P. Taylor, 1997. "The Term Structure Of Forward Exchange Premiums And The Forecastability Of Spot Exchange Rates: Correcting The Errors," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 353-361, August. [Downloadable!] (restricted)
  65. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December. [Downloadable!] (restricted)
  66. Anderson, Richard G. & Hoffman, Dennis L. & Rasche, Robert H., 2002. "A vector error-correction forecasting model of the US economy," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 569-598, December. [Downloadable!] (restricted)
    Other versions:
  67. Campbell R. Harvey, 1997. "The Relation between the Term Structure of Interest Rates and Canadian Economic Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 169-93, February. [Downloadable!] (restricted)
  68. Fletcher, Donna J. & Gulley, O. David, 1996. "Forecasting the real interest rate," The North American Journal of Economics and Finance, Elsevier, vol. 7(1), pages 55-76. [Downloadable!] (restricted)
  69. Lee, Jim, 1999. "Alternative P* Models of Inflation Forecasts," Economic Inquiry, Oxford University Press, vol. 37(2), pages 312-25, April.
  70. Lucio Sarno, 2003. "Nonlinear Exchange Rate Models: A Selective Overview," IMF Working Papers 03/111, International Monetary Fund. [Downloadable!]
Full references

Statistics
Access and download statistics

Did you know? You may want to explore EconPapers, which displays the same data as IDEAS in a different way.

This page was last updated on 2008-7-23.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.