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Unpredictability in Economic Analyis, Econometric Modelling and Forecasting

  • David Hendry

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. We note the implications of unanticipated shifts for forecasting, economic analyses of efficient markets, inter-temporal derivations, and general-to-specific model selection, tackling outliers and non-constancy by impulse-indicator saturation, and contrast the potential success in modeling breaks with the major difficulties confronting forecasting.

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File URL: http://www.economics.ox.ac.uk/materials/papers/5081/paper551.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 551.

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Date of creation: 01 May 2011
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Handle: RePEc:oxf:wpaper:551
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