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Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment

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  • Michael P. Clements

    (ICMA Centre, Henley Business School, University of Reading)

Abstract

We consider whether imposing long-run restrictions on survey respondents' long-horizon forecasts will enhance their accuracy. The restrictions are motivated by the belief that the macro-variables consumption, investment and output move together in the long run, and that this should be evident in long-horizon forecasts. The restrictions are imposed by exponential-tilting of simple auxiliary forecast densities. We find a modest overall improvement in forecast accuracy of around 7% on MSFE for the consumption-output ratio, but there are times when much larger gains were realizable. The transformation of the data/forecasts on which accuracy is assessed is shown to play an important role.

Suggested Citation

  • Michael P. Clements, 2014. "Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment," ICMA Centre Discussion Papers in Finance icma-dp2014-02, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:icmadp:icma-dp2014-02
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    Cited by:

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    2. Kapetanios, George & Millard, Stephen & Price, Simon & Petrova, Katerina, 2018. "Time varying cointegration and the UK Great Ratios," Essex Finance Centre Working Papers 23320, University of Essex, Essex Business School.
    3. Michael Clements, 2016. "Are Macro-Forecasters Essentially The Same? An Analysis of Disagreement, Accuracy and Efficiency," ICMA Centre Discussion Papers in Finance icma-dp2016-08, Henley Business School, University of Reading.
    4. Kapetanios, George & Millard, Stephen & Petrova, Katerina & Price, Simon, 2020. "Time-varying cointegration with an application to the UK Great Ratios," Economics Letters, Elsevier, vol. 193(C).
    5. Zhao, Yongchen, 2024. "Uncertainty of household inflation expectations: Reconciling point and density forecasts," Economics Letters, Elsevier, vol. 234(C).

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