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Forecasting Non-Stationary Economic Time Series : Zeuthen Lecture Book Series - Michael P. Clements

Forecasting Non-Stationary Economic Time Series

Zeuthen Lecture Book Series

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Economies evolve and are subject to sudden shifts precipitated by legislative changes, economic policy, major discoveries, and political turmoil. Macroeconometric models are a very imperfect tool for forecasting this highly complicated and changing process. Ignoring these factors leads to a wide discrepancy between theory and practice.In their second book on economic forecasting, Michael P. Clements and David F. Hendry ask why some practices seem to work empirically despite a lack of formal support from theory. After reviewing the conventional approach to economic forecasting, they look at the implications for causal modeling, present a taxonomy of forecast errors, and delineate the sources of forecast failure. They show that forecast-period shifts in deterministic factors--interacting with model misspecification, collinearity, and inconsistent estimation--are the dominant source of systematic failure. They then consider various approaches for avoiding systematic forecasting errors, including intercept corrections, differencing, co-breaking, and modeling regime shifts; they emphasize the distinction between equilibrium correction (based on cointegration) and error correction (automatically offsetting past errors). Finally, they present three applications to test the implications of their framework. Their results on forecasting have wider implications for the conduct of empirical econometric research, model formulation, the testing of economic hypotheses, and model-based policy analyses.

"Clements and Hendry provide an important service by systematically isolating and analyzing various potential sources of forecast error in econometric models used in forecasting....This book takes important steps toward closing the gap between the theory and practice of macroeconomic forecasting." - John Robertson, The Economic Journal"

List of Figures
List of Tables
Series Foreword
Common Acronyms
Economic Forecastingp. 1
Forecast Failurep. 36
Deterministic Shiftsp. 69
Other Sourcesp. 98
Differencingp. 133
Intercept Correctionsp. 166
Modeling Consumers' Expenditurep. 189
A Small UK Money Modelp. 216
Co-breakingp. 240
Modeling Shiftsp. 264
A Wage-Price Modelp. 286
Postscriptp. 300
Referencesp. 327
Glossaryp. 347
Author Indexp. 351
Subject Indexp. 355
Table of Contents provided by Blackwell. All Rights Reserved.

ISBN: 9780262531894
ISBN-10: 0262531895
Series: Zeuthen Lecture Book Series
Audience: Professional
For Ages: 18+ years old
Format: Paperback
Language: English
Number Of Pages: 314
Published: 26th January 2001
Country of Publication: US
Dimensions (cm): 22.9 x 15.2  x 2.4
Weight (kg): 0.53