9780262083041

Understanding Economic Forecasts

by
  • ISBN13:

    9780262083041

  • ISBN10:

    0262083043

  • Format: Hardcover
  • Copyright: 2001-11-01
  • Publisher: Mit Pr
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Summary

Historically, the theory of forecasting that underpinned actual practice in economics has been based on two key assumptions?-that the model was a good representation of the economy and that the structure of the economy would remain relatively unchanged. In reality, forecast models are mis-specified, the economy is subject to unanticipated shifts, and the failure to make accurate predictions is relatively common. In the last decade, economists have developed new theories of economic forecasting and additional methods of forecast evaluation that make less stringent assumptions. These theories and methods acknowledge that the economy is dynamic and prone to sudden shifts. They also recognize that forecasting models, however good, are greatly simplified representations that will be incorrect in some respects. One advantage of these newer approaches is that we can now account for the different results of competing forecasts. In this book academic specialists, practitioners, and a financial journalist explain these new developments in economic forecasting. The authors discuss how forecasting is conducted, evaluated, reported, and applied by academic, private, and governmental bodies, as well as how forecasting might be taught and what costs are induced by forecast errors. They also describe how econometric models for forecasting are constructed, how properties of forecasting methods can be analyzed, and what the future of economic forecasting may bring.

Table of Contents

List of Figures
xi
List of Tables
xiv
Preface xv
List of Contributors and Their Affiliations
xvii
Editors' Introduction
1(14)
Economic Forecasting
2(2)
An Analogy
4(3)
Forecasting Methods
7(2)
Evaluating Forecasts
9(1)
Summary of the Chapters
10(5)
How Economists Forecast
15(27)
David F. Hendry
Introduction
15(2)
Forecast Terminology
17(3)
Some Essential Background
20(4)
Methods of Forecasting
24(2)
On Winning at Forecasting
26(1)
On Determining the Forecast Winner
27(1)
Forecast Confidence Intervals
27(2)
How Economists Analyze Their Methods
29(4)
The Main Problems Affecting Economic Forecasts
33(1)
Forecasting 300 Years of UK Industrial Output
34(6)
Some Potential Solutions
40(1)
Conclusions
41(1)
Economic Modeling for Fun and Profit
42(12)
Paul Turner
Introduction
42(2)
Alternative Forecasting Methods
44(3)
A Basic Model of the UK Economy
47(5)
Concluding Remarks
52(2)
Making Sense of Published Economic Forecasts
54(14)
Diane Coyle
A Famous Forecasting Competition
54(3)
Spurious Precision
57(2)
Forecast Errors
59(3)
Confusing Public-service Forecasts with Targets
62(1)
Forecast Uncertainty and Policy Lags
63(2)
Forecasting Is Difficult
65(1)
Conclusions
66(2)
Forecast Uncertainty in Economic Modeling
68(25)
Neil R. Ericsson
Introduction
68(2)
Forecasts, Outcomes, and Forecast Errors
70(6)
Sources of Forecast Uncertainty
76(15)
Conclusions
91(2)
Evaluation of Forecasts
93(11)
Clive W. J. Granger
Model Evaluation in Economics
93(2)
Forecasting Background
95(2)
Evaluation of a Point Forecast
97(2)
Different Situations for Evaluation
99(1)
Forecasts and Decisions
100(3)
Concluding Remarks
103(1)
Forecasting and the UK Business Cycle
104(20)
Denise R. Osborn
Marianne Sensier
Paul W. Simpson
Introduction
104(4)
The Nature of the UK Business Cycle
108(2)
Univariate Business-cycle Models
110(5)
Interest Rates and Output Forecasts
115(5)
Measures of Forecast Accuracy
120(2)
Concluding Remarks
122(2)
Modeling and Forecasting at the Bank of England
124(25)
Neal Hatch
Introduction
124(1)
Models, Forecasts, and Policy
125(13)
A Suite of Models
138(4)
Properties of the Bank's Core Model
142(3)
Other Modeling Techniques and Information Sources
145(3)
Conclusions
148(1)
Forecasting the World Economy
149(21)
Ray Barrell
Introduction
149(4)
Endemic Structural Change
153(1)
European Labor Markets
154(2)
Japanese Consumers' Expenditure
156(1)
The East Asian Financial Crisis, 1997-1998
157(2)
The Collapse of LTCM in 1998
159(1)
Living in a Low-inflation World
160(4)
Inflation Uncertainty in the United Kingdom
164(5)
Conclusions
169(1)
The Costs of Forecast Errors
170(15)
Terence Burns
Introduction
170(1)
The General Case for Economic Forecasting
171(2)
Some Characteristics of Forecast Errors
173(2)
Forecast Errors under a Given Policy Framework
175(6)
Choosing the Policy Framework
181(2)
Conclusions
183(2)
Epilogue
185(8)
David F. Hendry
Neil R. Ericsson
A Retrospective
186(2)
A More Formal Approach
188(2)
Concluding Remarks
190(3)
References 193(10)
Author Index 203(2)
Subject Index 205

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