Forecast Failure, Expectations Formation, and the Lucas Critique
AbstractSince forecast failure is due to unanticipated large shifts in deterministic factors,'sensible' agents should adopt 'robust forecasting rules'. Unless the model coincides with the generating mechanism, one cannot even prove that causal variables will dominate non-causal in forecasting. In such a non-stationary world, 'rational expectations' do not have an epistemologically-sound basis: agents cannot know how all relevant information enters the joint data density at every point in time. Thus, although econometric models 'break down' intermittently when deterministic shifts occur, that is not due to the Lucas critique and need not impugen their value for policy analyses.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2002-W8.
Length: 15 pages
Date of creation: 13 Mar 2000
Date of revision:
Contact details of provider:
Web page: http://www.nuff.ox.ac.uk/economics/
Other versions of this item:
- David F. HENDRY, 2002. "Forecast Failure, Expectations Formation and the Lucas Critique," Annales d'Economie et de Statistique, ENSAE, issue 67-68, pages 21-40.
- David Hendry, 2000. "Forecast Failure, Expectations Formation, and the Lucas Critique," Economics Series Working Papers 2002-W08, University of Oxford, Department of Economics.
- NEP-ALL-2002-05-03 (All new papers)
- NEP-ECM-2002-05-03 (Econometrics)
- NEP-ETS-2002-05-03 (Econometric Time Series)
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.:
- Wallis, Kenneth F, 1993. "Comparing Macroeconometric Models: A Review Article," Economica, London School of Economics and Political Science, vol. 60(238), pages 225-37, May.
- Hendry, D.F. & Mizon, G.E., 1999. "On selecting policy analysis models by forecast accuracy," Discussion Paper Series In Economics And Econometrics 9918, Economics Division, School of Social Sciences, University of Southampton.
- Hendry, David F., 2000. "On detectable and non-detectable structural change," Structural Change and Economic Dynamics, Elsevier, vol. 11(1-2), pages 45-65, July.
- Michael P. Clements & David F. Hendry, 1999. "On winning forecasting competitions in economics," Spanish Economic Review, Springer, vol. 1(2), pages 123-160.
- Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
- Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
- 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.
- Clements,Michael & Hendry,David, 1998.
"Forecasting Economic Time Series,"
Cambridge University Press, number 9780521632423, October.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Fildes, Robert, 1992. "The evaluation of extrapolative forecasting methods," International Journal of Forecasting, Elsevier, vol. 8(1), pages 81-98, June.
- Clements, M.P. & Hendry, D., 1992. "On the Limitations of Comparing Mean Square Forecast Errors," Economics Series Working Papers 99138, University of Oxford, Department of Economics.
- Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895, December.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Hendry, David F, 1980. "Econometrics-Alchemy or Science?," Economica, London School of Economics and Political Science, vol. 47(188), pages 387-406, November.
- Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 475-94, Sept.-Oct.
- Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
- David Hendry, 2000. "A General Forecast-error Taxonomy," Econometric Society World Congress 2000 Contributed Papers 0608, Econometric Society.
- Sohrab Rafiq, 2013. "The Growth and Stabilization Properties of Fiscal Policy in Malaysia," IMF Working Papers 13/149, International Monetary Fund.
- Neil R. Ericsson, 2000. "Predictable uncertainty in economic forecasting," International Finance Discussion Papers 695, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxine Collett).
If references are entirely missing, you can add them using this form.