On Not Evaluating Economic Models by Forecast Outcomes
AbstractEven in scientific disciplines, forecast failures occur.� Four possible states of nature (a model is good or bad, and it forecasts well or badly) are examined using a forecast-error taxonomy, which traces the many possible sources of forecast errors.� This analysis shows that a valid model can forecast badly, and a poor model can forecast successfully.� Delineating the main causes of forecast failure reveals transformations that can correct failure without altering the 'quality' of the model in use.� We conclude that judging a model by the accuracy of its forecasts is more like fools' gold than a gold standard.
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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 538.
Date of creation: 01 Feb 2011
Date of revision:
Model evaluation; Forecast failure; Model selection;
Find related papers by JEL classification:
- C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-CBA-2011-03-12 (Central Banking)
- NEP-ECM-2011-03-12 (Econometrics)
- NEP-FOR-2011-03-12 (Forecasting)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.