Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment

40 Pages Posted: 23 Mar 2014

See all articles by Michael P. Clements

Michael P. Clements

University of Reading - Henley Business School

Date Written: March 21, 2014

Abstract

We consider whether imposing long-run restrictions on survey respondents' long-horizon forecasts will enhance their accuracy. The restrictions are motivated by the belief that the macro-variables consumption, investment and output move together in the long run, and that this should be evident in long-horizon forecasts. The restrictions are imposed by exponential-tilting of simple auxiliary forecast densities. We find a modest overall improvement in forecast accuracy of around 7% on MSFE for the consumption-output ratio, but there are times when much larger gains were realizable. The transformation of the data/forecasts on which accuracy is assessed is shown to play an important role.

Suggested Citation

Clements, Michael P., Long-Run Restrictions and Survey Forecasts of Output, Consumption and Investment (March 21, 2014). Available at SSRN: https://ssrn.com/abstract=2412640 or http://dx.doi.org/10.2139/ssrn.2412640

Michael P. Clements (Contact Author)

University of Reading - Henley Business School ( email )

Whiteknights
Reading, RG6 6BA
United Kingdom

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