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Economic forecasting: some lessons from recent research

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

Abstract

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

Suggested Citation

  • Clements, Michael P. & Hendry, David F., 2001. "Economic forecasting: some lessons from recent research," Working Paper Series 82, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:200182
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    References listed on IDEAS

    as
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    18. Hendry, David F. & Mizon, Grayham E., 2001. "Reformulating empirical macro-econometric modelling," Discussion Paper Series In Economics And Econometrics 0104, Economics Division, School of Social Sciences, University of Southampton.
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    21. David Hendry, 2000. "A General Forecast-error Taxonomy," Econometric Society World Congress 2000 Contributed Papers 0608, Econometric Society.
    22. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
    23. Clements, Michael P & Hendry, David F, 1996. "Multi-step Estimation for Forecasting," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 657-684, November.
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    25. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
    26. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, October.
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    More about this item

    Keywords

    forecast-error taxonomy; forecasting; model selection; structural breaks;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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