IDEAS home Printed from https://ideas.repec.org/p/oxf/wpaper/552.html
   My bibliography  Save this paper

An Open-model Forecast-error Taxonomy

Author

Listed:
  • David Hendry
  • Grayham E. Mizon

Abstract

We develop forecast-error taxonomies when there are unmodeled variables, forecast 'off-line'. We establish three surprising results. Even when an open system is correctly specified in-sample with zero intercepts, despite known future values of strongly exogenous variables, changes in dynamics can induce forecast failure when they have non-zero means. The additional impact on forecast failure of incorrectly omitting such variables depends only on shifts in their means. With no such shifts, there is no reduction in forecast failure from forecasting unmodeled variables relative to omitting them in 1-step or multi-step forecasts. Simulation illustrations confirm these results.

Suggested Citation

  • David Hendry & Grayham E. Mizon, 2011. "An Open-model Forecast-error Taxonomy," Economics Series Working Papers 552, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:552
    as

    Download full text from publisher

    File URL: https://ora.ox.ac.uk/objects/uuid:0cfa8b9e-5935-415f-b24d-7fad748e533c
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Forecasting; Forecast-error taxonomies; Location shifts; Open models;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:552. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anne Pouliquen (email available below). General contact details of provider: https://edirc.repec.org/data/sfeixuk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.