Forecasting by Extrapolation: Conclusions from 25 Years of Research

Abstract

Sophisticated extrapolation techniques have had a negligible payoff for accuracy in forecasting. As a result, major changes are proposed for the allocation of the funds for- future research on extrapolation. Meanwhile, simple methods and the combination of forecasts are recommended. Have advances in extrapolation methods helped to make short-range forecasts better now than in 1960? I am defining extrapolation as methods that rely solely on historical data from the series to be forecast. No other information is used. This class of methods is widely used in forecasting, especially for inventory control, process control, and in situations where other relevant data are not available. I describe a forecasting procedure that was used in 1960 and then present evidence from research published over the last quarter of a century.

Keywords: Forecasting by extrapolation, forecast accuracy, short-range forecasts