IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v10y1964i2p207-224.html
   My bibliography  Save this article

On the Optimality of Adaptive Forecasting

Author

Listed:
  • M. Nerlove

    (Econometric Institute, Rotterdam)

  • S. Wage

    (Econometric Institute, Rotterdam)

Abstract

The general procedure followed in the present paper is to show that, although the series generated by the Theil-Wage model [Theil, H., S. Wage. 1964. Some observations on adaptive forecasting. Management Sci. 10.] is nonstationary, there exists a simple transform of the series, in this case the second difference, which is stationary. This observation permits the Wiener-Hopf theory for stationary series to be applied to the transformed series. It is then shown that the results obtained by Theil and Wage are simply related to the optimal constant-parameter, linear predictors of the transformed series and thus that the adaptive forecasts are optimal in a rather wide sense. We believe, therefore, that the results of this paper illustrate a general approach to the prediction of non-stationary time series, and these are, after all, the type mainly encountered in economic or management problems. Thus the paper may have a somewhat wider significance than its title or primary purpose might suggest.

Suggested Citation

  • M. Nerlove & S. Wage, 1964. "On the Optimality of Adaptive Forecasting," Management Science, INFORMS, vol. 10(2), pages 207-224, January.
  • Handle: RePEc:inm:ormnsc:v:10:y:1964:i:2:p:207-224
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.10.2.207
    Download Restriction: no

    References listed on IDEAS

    as
    1. M. E. Salveson, 1956. "A Problem in Optimal Machine Loading," Management Science, INFORMS, vol. 2(3), pages 232-260, April.
    2. M. Beckman & R. Muth, 1956. "An Inventory Policy for a Case of Lagged Delivery," Management Science, INFORMS, vol. 2(2), pages 145-155, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Darby, Michael R, 1976. "Rational Expectations under Conditions of Costly Information," Journal of Finance, American Finance Association, vol. 31(3), pages 889-895, June.
    2. Rodney L. Jacobs & Robert A. Jones, 1978. "Price Expectations in the United States: 1947-1973," UCLA Economics Working Papers 107, UCLA Department of Economics.
    3. Torben G. Andersen & Tim Bollerslev & Peter Christoffersen & Francis X. Diebold, 2007. "Practical Volatility and Correlation Modeling for Financial Market Risk Management," NBER Chapters,in: The Risks of Financial Institutions, pages 513-548 National Bureau of Economic Research, Inc.
    4. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, Elsevier.
    5. Jacobs, Rodney L & Jones, Robert A, 1980. "The Treasury-Bill Futures Market," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 699-721, August.
    6. Rodney L. Jacobs, 1978. "An Examination of the Economic and Muthian Rationality of Price Level Forecasts," UCLA Economics Working Papers 135A, UCLA Department of Economics.
    7. Roger F. Miller & Harold W. Watts, 1967. "A Model of Household Investment in Financial Assets," NBER Chapters,in: Determinants of Investment Behavior, pages 357-410 National Bureau of Economic Research, Inc.
    8. Rodney L. Jacobs & Robert A. Jones, 1977. "A Bayesian Approach to Adaptive Expectations," UCLA Economics Working Papers 093, UCLA Department of Economics.
    9. Victor Zarnowitz, 1982. "Expectations and Forecasts from Business Outlook Surveys," NBER Working Papers 0845, National Bureau of Economic Research, Inc.
    10. Shepherd, Ben, 2012. "When are adaptive expectations rational? A generalization," Economics Letters, Elsevier, vol. 115(1), pages 4-6.
    11. Francis X. Diebold & Lutz Kilian & Marc Nerlove, 2006. "Time Series Analysis," PIER Working Paper Archive 06-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
      • Diebold, F.X. & Kilian, L. & Nerlove, Marc, 2006. "Time Series Analysis," Working Papers 28556, University of Maryland, Department of Agricultural and Resource Economics.
    12. Gardner, Everette Jr., 2006. "Exponential smoothing: The state of the art--Part II," International Journal of Forecasting, Elsevier, vol. 22(4), pages 637-666.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:10:y:1964:i:2:p:207-224. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.