How Far Can We Forecast? Forecast Content Horizons For Some Important Macroeconomic Time Series
AbstractFor 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. In this paper we estimate such content horizons for a variety of economic variables, and compare these with the maximum horizons which we observe reported in a large sample of empirical economic forecasting studies. We find that there are many instances of published studies which provide forecasts exceeding, often by substantial margins, our estimates of the content horizon for the particular variable and frequency. We suggest some simple reporting practices for forecasts that could potentially bring greater transparency to the process of making the interpreting economic forecasts.
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Bibliographic InfoPaper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2006-13.
Length: 32 pages
Date of creation: Sep 2006
Date of revision:
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-23 (All new papers)
- NEP-ECM-2006-09-23 (Econometrics)
- NEP-ETS-2006-09-23 (Econometric Time Series)
- NEP-FOR-2006-09-23 (Forecasting)
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