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Economic forecasting: some lessons from recent research

  • Hendry, David F.
  • Clements, Michael P.

This paper describes some recent advances and contributions to our understanding of economic forecasting. The framework we develop helps explain the findings of forecasting competitions and the prevalence of forecast failure. It constitutes a general theoretical background against which recent results can be judged. We compare this framework to a previous formulation, which was silent on the very issues of most concern to the forecaster. We describe a number of aspects which it illuminates, and draw out the implications for model selection. Finally, we discuss the areas where research remains needed to clarify empirical findings which lack theoretical explanations. JEL Classification: C32

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Paper provided by European Central Bank in its series Working Paper Series with number 0082.

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Date of creation: Nov 2001
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Handle: RePEc:ecb:ecbwps:20010082
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