Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment
No icma-dp2014-02, ICMA Centre Discussion Papers in Finance from Henley Business School, Reading University
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.
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Journal Article: Long-run restrictions and survey forecasts of output, consumption and investment (2016)
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