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Forecasting from Structural Econometric Models

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  • David Hendry
  • Grayham E. Mizon

Abstract

Understanding the workings of whole economies is essential for sound policy advice - but not necessarily for accurate forecasts.� Structural models play a major role at most central banks and many other governmental agencies, yet almost none forecast the financial crisis and ensuing recession.� We focus on the problem of forecast failure that has become prominent during and after that crisis, and illustrate its sources and many surprising implications using a simple model.� An application to 'forecasting' UK GDP over 2008(1)-2011(2) is consistent with our interpretation.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 597.

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Date of creation: 01 Mar 2012
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Handle: RePEc:oxf:wpaper:597

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Keywords: Structural models; Location shifts; Economic forecasting; Autometrics;

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References

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  1. David Hendry & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Economics Series Working Papers 2003-W14, University of Oxford, Department of Economics.
  2. Carlos Santos & David Hendry & Soren Johansen, 2008. "Automatic selection of indicators in a fully saturated regression," Computational Statistics, Springer, vol. 23(2), pages 317-335, April.
  3. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  4. Castle Jennifer L. & Doornik Jurgen A & Hendry David F., 2011. "Evaluating Automatic Model Selection," Journal of Time Series Econometrics, De Gruyter, vol. 3(1), pages 1-33, February.
  5. Engle, R. & Hendry, D., 1990. "Testing Super Exogeneity And Invariance In Regression Models," Economics Series Working Papers 99100, University of Oxford, Department of Economics.
  6. 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.
  7. Zellner, Arnold, 1986. "Biased predictors, rationality and the evaluation of forecasts," Economics Letters, Elsevier, vol. 21(1), pages 45-48.
  8. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
  9. Zellner, Arnold & Palm, Franz, 1974. "Time series analysis and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 2(1), pages 17-54, May.
  10. Jennifer Castle & David Hendry & Nicholas W.P. Fawcett, 2008. "Forecasting with Equilibrium-correction Models during Structural Breaks," Economics Series Working Papers 408, University of Oxford, Department of Economics.
  11. Hendry David F & Mizon Grayham E, 2011. "Econometric Modelling of Time Series with Outlying Observations," Journal of Time Series Econometrics, De Gruyter, vol. 3(1), pages 1-26, February.
  12. Hendry, David F. & Neale, Adrian J. & Srba, Frank, 1988. "Econometric analysis of small linear systems using PC-FIML," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 203-226.
  13. Zellner, Arnold & Tobias, Justin, 2004. "A Note on Aggregation, Disaggregation and Forecasting Performance," Staff General Research Papers 12371, Iowa State University, Department of Economics.
  14. Castle, Jennifer L. & Doornik, Jurgen A. & Hendry, David F., 2012. "Model selection when there are multiple breaks," Journal of Econometrics, Elsevier, vol. 169(2), pages 239-246.
  15. David Hendry & Carlos Santos, 2010. "An Automatic Test of Super Exogeneity," Economics Series Working Papers 476, University of Oxford, Department of Economics.
  16. Hendry, David F., 2006. "Robustifying forecasts from equilibrium-correction systems," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 399-426.
  17. Hendry, David F., 1976. "The structure of simultaneous equations estimators," Journal of Econometrics, Elsevier, vol. 4(1), pages 51-88, February.
  18. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, September.
  19. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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Cited by:
  1. Bell, Venetia & Co, Lai Wah & Stone, Sophie & Wallis, gavin`, 2014. "Nowcasting UK GDP growth," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 58-68.
  2. Wolfgang Nierhaus, 2012. "Konjunkturprognosen heute – Möglichkeiten und Probleme," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 19(05), pages 29-37, October.

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