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Unpredictability in Economic Analysis, Econometric Modeling and Forecasting

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  • David Hendry
  • Grayham E. Mizon

Abstract

Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and unanticipated extrinsic shifts of distributions.� We analyze their properties, relationships, and different effects on the three arenas in the title, which suggests considering three associated information sets.� The implications of unanticipated shifts for forecasting, economic analyses of efficient markets, conditional expectations, and inter-temporal derivations are described.� The potential success of general-to-specific model selection in tackling location shifts by impulse-indicator saturation is contrasted with the major difficulties confronting forecasting.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2013-W04.

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Date of creation: 14 Mar 2013
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Handle: RePEc:oxf:wpaper:2013-w04

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Keywords: Unpredictability; 'Black Swans'; distributional shifts; forecast failure; model selection; conditional expectations;

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