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Unpredictability in Economic Analysis, Econometric Modeling and Forecasting

  • David Hendry
  • Grayham E. Mizon

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.economics.ox.ac.uk/materials/papers/12746/2013-W04.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2013-W04.

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Date of creation: 14 Mar 2013
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Handle: RePEc:oxf:wpaper:2013-w04
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