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Evaluating a Model by Forecast Performance

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  • Michael P. Clements
  • David F. Hendry

Abstract

Although out-of-sample forecast performance is often deemed to be the 'gold standard' of evaluation, it is not in fact a good yardstick for evaluating models in general. The arguments are illustrated with reference to a recent paper by Carruth, Hooker and Oswald ["Review of Economics and Statistics" (1998), Vol. 80, pp. 621-628], who suggest that the good dynamic forecasts of their model support the efficiency-wage theory on which it is based. Copyright 2005 Blackwell Publishing Ltd.

Suggested Citation

  • Michael P. Clements & David F. Hendry, 2005. "Evaluating a Model by Forecast Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 931-956, December.
  • Handle: RePEc:bla:obuest:v:67:y:2005:i:s1:p:931-956
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0084.2005.00146.x
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    References listed on IDEAS

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    1. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809.
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    Cited by:

    1. Stekler, H.O., 2007. "The future of macroeconomic forecasting: Understanding the forecasting process," International Journal of Forecasting, Elsevier, vol. 23(2), pages 237-248.
    2. Bloom, David E. & Canning, David & Fink, Gunther & Finlay, Jocelyn E., 2007. "Does age structure forecast economic growth?," International Journal of Forecasting, Elsevier, vol. 23(4), pages 569-585.
    3. Bauwens, Luc & Sucarrat, Genaro, 2010. "General-to-specific modelling of exchange rate volatility: A forecast evaluation," International Journal of Forecasting, Elsevier, vol. 26(4), pages 885-907, October.
    4. Patrick Minford & Yongdeng Xu & Peng Zhou, 2015. "How Good are Out of Sample Forecasting Tests on DSGE Models?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(3), pages 333-351, November.
    5. repec:eee:transa:v:101:y:2017:i:c:p:73-85 is not listed on IDEAS
    6. Clements, Michael P., 2016. "Real-time factor model forecasting and the effects of instability," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 661-675.
    7. repec:eee:intfor:v:33:y:2017:i:3:p:591-604 is not listed on IDEAS
    8. Castle, Jennifer L. & Clements, Michael P. & Hendry, David F., 2013. "Forecasting by factors, by variables, by both or neither?," Journal of Econometrics, Elsevier, vol. 177(2), pages 305-319.

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