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On selecting policy analysis models by forecast accuracy

Record type: Monograph (Discussion Paper)

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.

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Citation

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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Published date: 1999

Identifiers

Local EPrints ID: 33153
URI: http://eprints.soton.ac.uk/id/eprint/33153
PURE UUID: fcdfd134-46e6-4fde-801a-3799ec096d97

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Date deposited: 24 May 2007
Last modified: 17 Jul 2017 15:53

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Contributors

Author: D.F. Hendry
Author: G.E. Mizon

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