Is forecasting with large models informative? Assessing the role of judgement in macroeconomic forecasts
AbstractWe evaluate residual projection strategies in the context of a large-scale macro model of the euro area and smaller benchmark time-series models. The exercises attempt to measure the accuracy of model-based forecasts simulated both out-of-sample and in-sample. Both exercises incorporate alternative residual-projection methods, to assess the importance of unaccounted-for breaks in forecast accuracy and off-model judgment. Conclusions reached are that simple mechanical residual adjustments have a significant impact of forecasting accuracy irrespective of the model in use, ostensibly due to the presence of breaks in trends in the data. The testing procedure and conclusions are applicable to a wide class of models and thus of general interest. JEL Classification: C52, E30, E32, E37
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Date of creation: Oct 2008
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Other versions of this item:
- Ricardo Mestre & Peter McAdam, 2011. "Is forecasting with large models informative? Assessing the role of judgement in macroeconomic forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(3), pages 303-324, April.
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-04 (All new papers)
- NEP-CBA-2008-11-04 (Central Banking)
- NEP-ECM-2008-11-04 (Econometrics)
- NEP-ETS-2008-11-04 (Econometric Time Series)
- NEP-FOR-2008-11-04 (Forecasting)
- NEP-MAC-2008-11-04 (Macroeconomics)
- NEP-RMG-2008-11-04 (Risk Management)
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