Advanced Search
MyIDEAS: Login to save this paper or follow this series

Forecasting from Mis-specified Models in the Presence of Unanticipated Location Shifts

Contents:

Author Info

  • David Hendry
  • Michael P. Clements

Abstract

This chapter describes the issues confronting any realistic context for economic forecasting, which is inevitably based on unknowingly mis-specified models, usually estimated from mis-measured data, facing intermittent and often unanticipated location shifts.� We focus on mitigating the systematic forecast failures that result in such settings, and describe the background to our approach, the difficulties of evaluating forecasts, and the devices that are more robust when change occurs.

Download Info

If 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.
File URL: http://www.economics.ox.ac.uk/materials/papers/4352/paper484.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 484.

as in new window
Length:
Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:oxf:wpaper:484

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC

Related research

Keywords: Economic forecasting; Location shifts; Mis-specified models; Robust forecasts;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  2. Giacomini, Raffaella & Rossi, Barbara, 2006. "Detecting and predicting forecast breakdowns," Working Paper Series 0638, European Central Bank.
  3. Jennifer L. Castle & Nicholas W.P. Fawcett & David F. Hendry, 2009. "Nowcasting Is Not Just Contemporaneous Forecasting," National Institute Economic Review, National Institute of Economic and Social Research, vol. 210(1), pages 71-89, October.
  4. David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford.
  5. Baillie, R.T. & Bollerslev, R.T., 1990. "Prediction In Dynamic Models With Time Dependent Conditional Variances," Papers 8815, Michigan State - Econometrics and Economic Theory.
  6. Evan F. Koenig & Sheila Dolmas & Jeremy Piger, 2000. "The use and abuse of "real-time" data in economic forecasting," International Finance Discussion Papers 684, Board of Governors of the Federal Reserve System (U.S.).
  7. Bera, Anil K & Higgins, Matthew L, 1993. " ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 7(4), pages 305-66, December.
  8. Aruoba, Boragan, 2005. "Data Revisions Are Not Well-Behaved," CEPR Discussion Papers 5271, C.E.P.R. Discussion Papers.
  9. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  10. Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
  11. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, September.
  12. Pesaran, M.H. & Schuermann, T. & Smit, L.V., 2008. "Forecasting Economic and Financial Variables with Global VARs," Cambridge Working Papers in Economics 0807, Faculty of Economics, University of Cambridge.
  13. Peter F. Christoffersen & Francis X. Diebold, 1997. "Cointegration and Long-Horizon Forecasting," NBER Technical Working Papers 0217, National Bureau of Economic Research, Inc.
  14. Hendry, David F. & Hubrich, Kirstin, 2011. "Combining Disaggregate Forecasts or Combining Disaggregate Information to Forecast an Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 216-227.
  15. Raffaella Giacomini & Halbert White, 2003. "Tests of Conditional Predictive Ability," Econometrics 0308001, EconWPA.
  16. Howrey, E Philip, 1984. "Data Revision, Reconstruction, and Prediction: An Application to Inventory Investment," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 386-93, August.
  17. Hendry, David F, 1974. "Stochastic Specification in an Aggregate Demand Model of the United Kingdom," Econometrica, Econometric Society, vol. 42(3), pages 559-78, May.
  18. Todd E. Clark & Michael W. McCracken, 2010. "Averaging forecasts from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 5-29.
  19. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc.
  20. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, Elsevier.
  21. 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.
  22. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  23. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2005. "Exploring the International Linkages of the Euro Area: a Global VAR Analysis," CESifo Working Paper Series 1425, CESifo Group Munich.
  24. Hendry, David F., 2006. "Robustifying forecasts from equilibrium-correction systems," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 399-426.
  25. Clements, Michael P. & Galvão, Ana Beatriz, 2009. "First Announcements and Real Economic Activity," The Warwick Economics Research Paper Series (TWERPS) 885, University of Warwick, Department of Economics.
  26. Patterson, K. D., 2003. "Exploiting information in vintages of time-series data," International Journal of Forecasting, Elsevier, vol. 19(2), pages 177-197.
  27. Todd E. Clark & Michael W. McCracken, 2009. "Improving Forecast Accuracy By Combining Recursive And Rolling Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 363-395, 05.
  28. Faust, Jon & Rogers, John H. & H. Wright, Jonathan, 2003. "Exchange rate forecasting: the errors we've really made," Journal of International Economics, Elsevier, vol. 60(1), pages 35-59, May.
  29. Leitch, Gordon & Tanner, J Ernest, 1991. "Economic Forecast Evaluation: Profits versus the Conventional Error Measures," American Economic Review, American Economic Association, vol. 81(3), pages 580-90, June.
  30. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
  31. Dean Croushore & Tom Stark, 2003. "A Real-Time Data Set for Macroeconomists: Does the Data Vintage Matter?," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 605-617, August.
  32. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  33. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  34. Castle, Jennifer L. & Fawcett, Nicholas W.P. & Hendry, David F., 2010. "Forecasting with equilibrium-correction models during structural breaks," Journal of Econometrics, Elsevier, vol. 158(1), pages 25-36, September.
  35. Norman R. Swanson & Valentina Corradi & Andres Fernandez, 2011. "Information in the Revision Process of Real-Time Datasets," Departmental Working Papers 201107, Rutgers University, Department of Economics.
  36. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  37. Lutkepohl, Helmut, 2006. "Forecasting with VARMA Models," Handbook of Economic Forecasting, Elsevier.
  38. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  39. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, April.
  40. Alastair Cunningham & Jana Eklund & Christopher Jeffery & George Kapetanios & Vincent Labhard, 2007. "A state space approach to extracting the signal from uncertain data," Bank of England working papers 336, Bank of England.
  41. Michael P. Clements & David F. Hendry, 2002. "Modelling methodology and forecast failure," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 319-344, 06.
  42. Hendry, David F. & Massmann, Michael, 2007. "Co-Breaking: Recent Advances and a Synopsis of the Literature," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 33-51, January.
  43. Todd E. Clark & Michael W. McCracken, 2007. "Forecasting with small macroeconomic VARs in the presence of instabilities," Finance and Economics Discussion Series 2007-41, Board of Governors of the Federal Reserve System (U.S.).
  44. Granger, Clive W. J. & Jeon, Yongil, 2004. "Thick modeling," Economic Modelling, Elsevier, vol. 21(2), pages 323-343, March.
  45. Jennifer L. Castle & David F. Hendry, 2010. "Nowcasting from disaggregates in the face of location shifts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 200-214.
  46. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  47. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  48. Jacobs, Jan P.A.M. & van Norden, Simon, 2011. "Modeling data revisions: Measurement error and dynamics of "true" values," Journal of Econometrics, Elsevier, vol. 161(2), pages 101-109, April.
  49. John C. Robertson & Ellis W. Tallman, 1998. "Data vintages and measuring forecast model performance," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 4-20.
  50. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  51. Søren Johansen & Bent Nielsen, 2008. "An analysis of the indicator saturation estimator as a robust regression," Discussion Papers 08-03, University of Copenhagen. Department of Economics.
  52. Johansen, Søren, 1992. "A Representation of Vector Autoregressive Processes Integrated of Order 2," Econometric Theory, Cambridge University Press, vol. 8(02), pages 188-202, June.
  53. Christophe Bontemps & Grayham E. Mizon, 2008. "Encompassing: Concepts and Implementation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 721-750, December.
  54. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  55. Hendry, David F, 1994. "HUS Revisited," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 86-106, Summer.
  56. 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.
  57. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:484. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.