Economic Forecasting

Allan Timmermann and Graham Elliott (grelliott@ucsd.edu)

No 6158, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Forecasts guide decisions in all areas of economics and finance and their value can only be understood in relation to, and in the context of, such decisions. We discuss the central role of the loss function in helping determine the forecaster's objectives and use this to present a unified framework for both the construction and evaluation of forecasts. Challenges arise from the explosion in the sheer volume of predictor variables under consideration and the forecaster's ability to entertain an endless array of functional forms and time-varying specifications, none of which may coincide with the `true' model. Methods for comparing the forecasting performance of pairs of models or evaluating the ability of the best of many models to beat a benchmark specification are also reviewed.

Keywords: Economic forecasting; Forecast evaluation; Loss function (search for similar items in EconPapers)
JEL-codes: C53 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Book: Economic Forecasting (2016)
Journal Article: Economic Forecasting (2008)
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