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The Implications for Econometric Modelling of Forecast Failure


  • Hendry, David F
  • Doornik, Jurgen A


To reconcile forecast failure with building congruent empirical models, the authors analyze the sources of misprediction. This reveals that an ex ante forecast failure is purely a function of forecast-period events, not determinable from in-sample information. The primary causes are unmodeled shifts in deterministic factors, rather than model misspecification, collinearity, or a lack of parsimony. The authors examine the effects of deterministic breaks on equilibrium-correction mechanisms and consider the role of causal variables. Throughout, Monte Carlo simulation and empirical models illustrate the analysis and support a progressive research strategy based on learning from past failures. Copyright 1997 by Scottish Economic Society.

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  • Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-461, September.
  • Handle: RePEc:bla:scotjp:v:44:y:1997:i:4:p:437-61

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    References listed on IDEAS

    1. Wolfgang Scheremet, 1995. "Tarifpolitik in Ostdeutschland: Ausstieg aus dem Lohnverhandlungsmodell der Bundesrepublik Deutschland?," Discussion Papers of DIW Berlin 113, DIW Berlin, German Institute for Economic Research.
    2. Lars Calmfors, 1993. "Centralisation of Wage Bargaining and Macroeconomic Performance: A Survey," OECD Economics Department Working Papers 131, OECD Publishing.
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