On selecting policy analysis models by forecast accuracy


Hendry, D.F. and Mizon, G.E. (1999) On selecting policy analysis models by forecast accuracy. Southampton, UK, University of Southampton (Discussion Papers in Economics and Econometrics 9918).

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Description/Abstract

The value of selecting the best forecasting model as the basis for empirical economic policy analysis is questioned. When no model coincides with the data generation process, non-causal statistical devices may provide the best available forecasts: examples from recent work include intercept corrections and differenced-data VARs. However, the resulting models need have no policy implications. A ‘paradox’ may result if their forecasts induce policy changes which can be used to improve the statistical forecast. This suggests correcting statistical forecasts by using the econometric model’s estimate of the ‘scenario’ change. An application to UK consumers expenditure illustrates the analysis.

Item Type: Monograph (Discussion Paper)
Related URLs:
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HA Statistics
Divisions: University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 33153
Date Deposited: 24 May 2007
Last Modified: 27 Mar 2014 18:20
Publisher: University of Southampton
URI: http://eprints.soton.ac.uk/id/eprint/33153

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