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Long-run restrictions and survey forecasts of output, consumption and investment

Michael Clements

International Journal of Forecasting, 2016, vol. 32, issue 3, 614-628

Abstract: We consider the extent to which long-horizon survey forecasts of consumption, investment and output growth are consistent with theory-based steady-state values, and whether imposing these restrictions on long-horizon forecasts will enhance their accuracy. The restrictions that we impose are consistent with a two-sector model in which the variables grow at different rates in steady state. The restrictions are imposed by an exponential-tilting of simple auxiliary forecast densities. We show that imposing the consumption–output restriction yields modest improvements in the long-horizon output growth forecasts, and larger improvements in the forecasts of the cointegrating combination of consumption and output: the transformation of the data on which accuracy is assessed plays an important role.

Date: 2016
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Working Paper: Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment (2014) Downloads
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DOI: 10.1016/j.ijforecast.2015.10.005

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Handle: RePEc:eee:intfor:v:32:y:2016:i:3:p:614-628