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A General Forecast-error Taxonomy

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  • David Hendry

    (Nuffield College)

Abstract

The paper considers the sources of forecast errors and their consequences in an evolving economy subject to structural breaks,forecasting from mis-specified, data-based models. A model-free taxonomy of forecast errors highlights that deterministic shifts are a major cause of systematic forecast failure. Other sources seem to pose fewer problems. The taxonomy embeds several previous model-based taxonomies for VARs, VECMs, and multi-step estimators, and reveals the stringent requirements that rationality assumptions impose on economic agents.

Suggested Citation

  • David Hendry, 2000. "A General Forecast-error Taxonomy," Econometric Society World Congress 2000 Contributed Papers 0608, Econometric Society.
    • Handle: RePEc:ecm:wc2000:0608
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    Cited by:

    1. Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March.
    2. David F. Hendry, 2002. "Forecast Failure, Expectations Formation and the Lucas Critique," Annals of Economics and Statistics, GENES, issue 67-68, pages 21-40.
    3. Guillaume Chevillon, 2007. "Direct Multi‐Step Estimation And Forecasting," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 746-785, September.
    4. Fernando N. de Oliveira, 2015. "Financial and Real Sector Leading Indicators of Recessions in Brazil using Probabilistic Models," Working Papers Series 402, Central Bank of Brazil, Research Department.
    5. Christian Ragacs & Martin Schneider, 2009. "Why did we fail to predict GDP during the last cycle? A breakdown of forecast errors for Austria," Working Papers 151, Oesterreichische Nationalbank (Austrian Central Bank).

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