Unpredictability in Economic Analysis, Econometric Modeling and Forecasting
David Hendry () and
No 2013-W04, Economics Papers from Economics Group, Nuffield College, University of Oxford
Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and unanticipated extrinsic shifts of distributions. We analyze their properties, relationships, and different effects on the three arenas in the title, which suggests considering three associated information sets. The implications of unanticipated shifts for forecasting, economic analyses of efficient markets, conditional expectations, and inter-temporal derivations are described. The potential success of general-to-specific model selection in tackling location shifts by impulse-indicator saturation is contrasted with the major difficulties confronting forecasting.
Keywords: Unpredictability; ‘Black Swans’; Distributional shifts; Forecast failure; Model selection; Conditional expectations. (search for similar items in EconPapers)
JEL-codes: C51 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-for and nep-ore
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Journal Article: Unpredictability in economic analysis, econometric modeling and forecasting (2014)
Working Paper: Unpredictability in Economic Analyis, Econometric Modelling and Forecasting (2011)
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