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

Michael Clements

ICMA Centre Discussion Papers in Finance from 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.

Pages: 40 pages
Date: 2014-02
New Economics Papers: this item is included in nep-for and nep-mac
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Related works:
Journal Article: Long-run restrictions and survey forecasts of output, consumption and investment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2014-02

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