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Comment on "Economic Forecasting in a Changing World" (by Michael Clements and David Hendry)

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  • Ericsson Neil R.

    (Federal Reserve Board, Washington, D. C.)

Abstract

Michael Clements and David Hendry make realistic assumptions about the nature of the economy and the models used to forecast it. Under those assumptions, Clements and Hendry clarify why forecasting models work when they do, and why they don't work when they don't. Their research also suggests how to improve the forecasting abilities of existing models.A taxonomy of the sources of forecast error underpins Clements and Hendry's analysis. In my comments, I summarize their taxonomy; illustrate several implications, including for predictable and unpredictable forecast uncertainty; and re-examine forecast criteria, focusing on how mean square forecast errors can mislead.

Suggested Citation

  • Ericsson Neil R., 2008. "Comment on "Economic Forecasting in a Changing World" (by Michael Clements and David Hendry)," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-18, October.
    • Handle: RePEc:bpj:capsoc:v:3:y:2008:i:2:n:2
    DOI: 10.2202/1932-0213.1041
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    Cited by:

    1. Ericsson, Neil R., 2017. "Economic forecasting in theory and practice: An interview with David F. Hendry," International Journal of Forecasting, Elsevier, vol. 33(2), pages 523-542.
    2. Håvard Hungnes, 2020. "Predicting the exchange rate path. The importance of using up-to-date observations in the forecasts," Discussion Papers 934, Statistics Norway, Research Department.
    3. Michael S. Lee-Browne, 2019. "Estimating monetary policy rules in small open economies," Working Papers 2019-002, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    4. Håvard Hungnes, 2018. "Encompassing tests for evaluating multi-step system forecasts invariant to linear transformations," Discussion Papers 871, Statistics Norway, Research Department.
    5. Neil R. Ericsson, 2021. "Dynamic Econometrics in Action: A Biography of David F. Hendry," International Finance Discussion Papers 1311, Board of Governors of the Federal Reserve System (U.S.).
    6. Håvard Hungnes, 2020. "Equal predictability test for multi-step-ahead system forecasts invariant to linear transformations," Discussion Papers 931, Statistics Norway, Research Department.

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