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Long-run restrictions and survey forecasts of output, consumption and investment

Listed author(s):
  • Clements, Michael P.

We consider the extent to which long-horizon survey forecasts of consumption, investment and output growth are consistent with theory-based steady-state values, and whether imposing these restrictions on long-horizon forecasts will enhance their accuracy. The restrictions that we impose are consistent with a two-sector model in which the variables grow at different rates in steady state. The restrictions are imposed by an exponential-tilting of simple auxiliary forecast densities. We show that imposing the consumption–output restriction yields modest improvements in the long-horizon output growth forecasts, and larger improvements in the forecasts of the cointegrating combination of consumption and output: the transformation of the data on which accuracy is assessed plays an important role.

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File URL: http://www.sciencedirect.com/science/article/pii/S016920701600008X
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 32 (2016)
Issue (Month): 3 ()
Pages: 614-628

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Handle: RePEc:eee:intfor:v:32:y:2016:i:3:p:614-628
DOI: 10.1016/j.ijforecast.2015.10.005
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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