Freedom of Choice in Macroeconomic Forecasting

Posted: 4 Jun 2010

See all articles by Nikolay Robinzonov

Nikolay Robinzonov

Ludwig Maximilian University of Munich (LMU)

Klaus Wohlrabe

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: June 2010

Abstract

Different studies provide a surprisingly large variety of controversial conclusions about the forecasting power of an indicator, even when it is supposed to forecast the same time series. In this study, we aim to provide a thorough overview of linear forecasting techniques and draw conclusions useful for the identification of the predictive relationship between leading indicators and time series. In a case study for Germany, we forecast two possible representations of industrial production. Further on we consider a large variety of time-varying specifications. In a horse race with nine leading indicators plus an AR benchmark model, we demonstrate the variance of assessment across target variables and forecasting settings (50 per horizon). We show that it is nearly always possible to find situations in which one indicator proved to have better predicting power compared with another. Nevertheless, the freedom of choice can be useful to identify robust leading indicators.

Keywords: forecasting competition, leading indicators, model selection

JEL Classification: C52, C53, E37

Suggested Citation

Robinzonov, Nikolay and Wohlrabe, Klaus, Freedom of Choice in Macroeconomic Forecasting (June 2010). CESifo Economic Studies, Vol. 56, Issue 2, pp. 192-220, 2010. Available at SSRN: https://ssrn.com/abstract=1617068 or http://dx.doi.org/ifp019

Nikolay Robinzonov (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Klaus Wohlrabe

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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