Policy Analysis, Forediction, and Forecast Failure
Jennifer Castle () and
David Hendry ()
Authors registered in the RePEc Author Service: Andrew B. Martinez ()
No 809, Economics Series Working Papers from University of Oxford, Department of Economics
Economic policy agencies accompany forecasts with narratives, a combination we call foredictions, often basing policy changes on developments envisaged. Forecast failure need not impugn a forecasting model, although it may, but almost inevitably entails forediction failure and invalidity of the associated policy. Most policy regime changes involve location shifts, which can induce forediction failure unless the policy variable is super exogenous in the policy model. We propose a step-indicator saturation test to check in advance for invariance to policy changes. Systematic forecast failure, or a lack of invariance, previously justified by narratives reveals such stories to be economic fiction.
Keywords: Forediction; Invariance; Super exogeneity; Indicator saturation; Co-breaking; Autometrics (search for similar items in EconPapers)
JEL-codes: C51 C22 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:809
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