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Unpredictability in Economic Analysis, Econometric Modeling and Forecasting

Listed author(s):
  • David F. Hendry

    ()

    (Department of Economics and Institute of Economic Modelling, Oxford Martin School, University of Oxford)

  • Grayham E. Mizon

    (University of Southampton and Institute of Economic Modelling, Oxford Martin School, University of Oxford)

Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and unanticipated extrinsic shifts of distributions. We analyze their properties, relationships, and different effects on the three arenas in the title, which suggests considering three associated information sets. The implications of unanticipated shifts for forecasting, economic analyses of efficient markets, conditional expectations, and inter-temporal derivations are described. The potential success of general-to-specific model selection in tackling location shifts by impulse-indicator saturation is contrasted with the major difficulties confronting forecasting.

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File URL: http://www.nuffield.ox.ac.uk/Academic/Economics/Working%20Papers/Documents/2013/UnPredDFHGEM12.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2013-W04.

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Length: 25 pages
Date of creation: 25 Feb 2013
Handle: RePEc:nuf:econwp:1304
Contact details of provider: Web page: https://www.nuffield.ox.ac.uk/economics/

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