Economic Forecasting

61 Pages Posted: 19 May 2008

See all articles by Graham Elliott

Graham Elliott

University of California, San Diego (UCSD) - Department of Economics

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Date Written: March 2007

Abstract

Forecasts guide decisions in all areas of economics and finance and their value can only be understood in relation to, and in the context of, such decisions. We discuss the central role of the loss function in helping determine the forecaster's objectives and use this to present a unified framework for both the construction and evaluation of forecasts. Challenges arise from the explosion in the sheer volume of predictor variables under consideration and the forecaster's ability to entertain an endless array of functional forms and time-varying specifications, none of which may coincide with the 'true' model. Methods for comparing the forecasting performance of pairs of models or evaluating the ability of the best of many models to beat a benchmark specification are also reviewed.

Keywords: Economic forecasting, forecast evaluation, loss function

JEL Classification: C53

Suggested Citation

Elliott, Graham and Timmermann, Allan, Economic Forecasting (March 2007). CEPR Discussion Paper No. DP6158, Available at SSRN: https://ssrn.com/abstract=1133802

Graham Elliott (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-4481 (Phone)
858-534-7040 (Fax)

Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)

HOME PAGE: http://rady.ucsd.edu/people/faculty/timmermann/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
7
Abstract Views
1,880
PlumX Metrics