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A framework for economic forecasting

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  • Neil R. Ericsson
  • Jaime Marquez

Abstract

This paper proposes a tripartite framework of design, evaluation, and post-evaluation analysis for generating and interpreting economic forecasts. This framework's value is illustrated by re-examining mean square forecast errors from dynamic models and nonlinearity biases from empirical forecasts of U.S. external trade. Previous studies have examined properties such as nonlinearity bias and the possible nonmonotonicity and nonexistence of mean square forecast errors in isolation from other aspects of the forecasting process, resulting in inefficient forecasting techniques and seemingly puzzling phenomena. The framework developed reveals how each such property follows from systematically integrating all aspects of the forecasting process.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/626/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/626/ifdp626.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 626.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:626

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Keywords: Forecasting;

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  1. Calzolari, Giorgio, 1979. "Antithetic variates to estimate the simulation bias in non-linear models," Economics Letters, Elsevier, vol. 4(4), pages 323-328.
  2. Calzolari, Giorgio, 1987. "Forecast Variance in Dynamic Simulation of Simultaneous Equation Models," Econometrica, Econometric Society, vol. 55(6), pages 1473-76, November.
  3. Calzolari, Giorgio & Sterbenz, Frederic P, 1986. "Control Variates to Estimate the Reduced Form Variances in Econometric Models," Econometrica, Econometric Society, vol. 54(6), pages 1483-90, November.
  4. Brown, Bryan W. & Mariano, Roberto S., 1989. "Predictors in Dynamic Nonlinear Models: Large-Sample Behavior," Econometric Theory, Cambridge University Press, vol. 5(03), pages 430-452, December.
  5. Baillie, Richard T, 1981. "Prediction from the Dynamic Simultaneous Equation Model with Vector Autoregressive Errors," Econometrica, Econometric Society, vol. 49(5), pages 1331-37, September.
  6. Calzolari, Giorgio, 1981. "A Note on the Variance of Ex-Post Forecasts in Econometric Models," Econometrica, Econometric Society, vol. 49(6), pages 1593-95, November.
  7. Bianchi, Carlo & Calzolari, Giorgio & Brillet, Jean-Louis, 1987. "Measuring forecast uncertainty : A review with evaluation based on a macro model of the French economy," International Journal of Forecasting, Elsevier, vol. 3(2), pages 211-227.
  8. Beach, Charles M & MacKinnon, James G, 1978. "A Maximum Likelihood Procedure for Regression with Autocorrelated Errors," Econometrica, Econometric Society, vol. 46(1), pages 51-58, January.
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Citations

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Cited by:
  1. Jenny X. Li & Peter Winker, 2003. "Time Series Simulation with Quasi Monte Carlo Methods," Computational Economics, Society for Computational Economics, vol. 21(1_2), pages 23-43, 02.
  2. Clements, Michael P. & Galv O, Ana Beatriz C., 2003. "Testing The Expectations Theory Of The Term Structure Of Interest Rates In Threshold Models," Macroeconomic Dynamics, Cambridge University Press, vol. 7(04), pages 567-585, September.
  3. John Galbraith, 1999. "Content Horizons for Forecasts of Economic Time Series," CIRANO Working Papers 99s-17, CIRANO.
  4. Neil R. Ericsson, 2000. "Predictable uncertainty in economic forecasting," International Finance Discussion Papers 695, Board of Governors of the Federal Reserve System (U.S.).
  5. Neil R. Ericsson, 2001. "Forecast uncertainty in economic modeling," International Finance Discussion Papers 697, Board of Governors of the Federal Reserve System (U.S.).
  6. Daniel J. Wilson, 2001. "Embodying embodiment in a structural, macroeconomic input-output model," Working Paper Series 2001-18, Federal Reserve Bank of San Francisco.
  7. Guillaume Chevillon, 2007. "Direct Multi-Step Estimation And Forecasting," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 746-785, 09.

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