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Outline of forecast theory using generalized cost functions

Author

Listed:
  • Clive W.J. Granger

    () (Department of Economics, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0508, USA)

Abstract

The cost functions used to form forecasts in practice may be quite different than the squared costs that is often assumed in forecast theory. The impact on evaluation procedures is determined and simple properties for the derivate of the cost function of the errors are found to provide simple tests of optimality. For a very limited class of situations are forecasts based on conditional means optimal, generally, the econometricians needs to provide the whole conditional predicted distribution. Implications for multi-step forecasts and the combination of forecasts are briefly considered.

Suggested Citation

  • Clive W.J. Granger, 1999. "Outline of forecast theory using generalized cost functions," Spanish Economic Review, Springer;Spanish Economic Association, vol. 1(2), pages 161-173.
  • Handle: RePEc:spr:specre:v:1:y:1999:i:2:p:161-173
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    Keywords

    Optimum forecasts; cost functions; predictive distribution;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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