The University of Southampton
University of Southampton Institutional Repository

On selecting policy analysis models by forecast accuracy

On selecting policy analysis models by forecast accuracy
On selecting policy analysis models by forecast accuracy
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.
9918
University of Southampton
Hendry, D.F.
b64573d2-e4d5-4f6d-b085-59ea92f8c480
Mizon, G.E.
2b8353b4-0af4-48db-b552-6867dc1f4583
Hendry, D.F.
b64573d2-e4d5-4f6d-b085-59ea92f8c480
Mizon, G.E.
2b8353b4-0af4-48db-b552-6867dc1f4583

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

Record type: Monograph (Discussion Paper)

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.

Text
9918.pdf - Version of Record
Download (252kB)

More information

Published date: 1999

Identifiers

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

Catalogue record

Date deposited: 24 May 2007
Last modified: 15 Mar 2024 07:43

Export record

Contributors

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

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×