A Companion to Economic Forecasting

Michael P. Clements is a Reader in Economics at the University of Warwick. He is co-author with David Hendry of Forecasting Economic Time Series (1998) and Forecasting Non-stationary Economic Time Series (1999), and has published in academic journals on a variety of time-series econometrics topics. David F. Hendry, Professor of Economics at Oxford University, is a past President and Honorary Vice-President of the Royal Economic Society, Fellow of the British Academy and Econometric Society, and a Foreign Honorary Member of both the American Academy of Arts and Sciences and the American Economic Association. He has published more than twenty books, as well as over 150 articles and papers on time-series econometrics, econometric modeling, economic forecasting, the history of econometrics, Monte Carlo methods, econometric computing and empirical applications.

List of Contributors ix

Preface xi

Acknowledgments xiii

1 An Overview of Economic Forecasting 1
Michael P. Clements and David F. Hendry

2 Predictable Uncertainty in Economic Forecasting 19
Neil R. Ericsson

3 Density Forecasting: A Survey 45
Anthony S. Tay and Kenneth F. Wallis

4 Statistical Approaches to Modeling and Forecasting Time Series 69
Diego J. Pedregal and Peter C. Young

5 Forecasting with Structural Time-Series Models 105
Tommaso Proietti

6 Judgmental Forecasting 133
Dilek Önkal-Atay, Mary E. Thomson, and Andrew C. Pollock

7 Forecasting for Policy 152
Adrian R. Pagan and John Robertson

8 Forecasting Cointegrated VARMA Processes 179
Helmut Lütkepohl

9 Multi-Step Forecasting 206
R.J. Bhansali

10 The Rationality and Efficiency of Individuals’ Forecasts 222
Herman O. Stekler

11 Decision-Based Methods for Forecast Evaluation 241
M. Hashem Pesaran and Spyros Skouras

12 Forecast Combination and Encompassing 268
Paul Newbold and David I. Harvey

13 Testing Forecast Accuracy 284
Roberto S. Mariano

14 Inference About Predictive Ability 299
Michael W. McCracken and Kenneth D. West

15 Forecasting Competitions: Their Role in Improving Forecasting Practice and Research 322
Robert Fildes and Keith Ord

16 Empirical Comparisons of Inflation Models’ Forecast Accuracy 354
Øyvind Eitrheim, Tore Anders Husebø, and Ragnar Nymoen

17 The Forecasting Performance of the OECD Composite Leading Indicators for France, Germany, Italy, and the U.K. 386
Gonzalo Camba-Mendez, George Kapetanios, Martin R. Weale, and Richard J. Smith

18 Unit-Root Versus Deterministic Representations of Seasonality for Forecasting 409
Denise R. Osborn

19 Forecasting with Periodic Autoregressive Time-Series Models 432
Philip Hans Franses and Richard Paap

20 Nonlinear Models and Forecasting 453
Ruey S. Tsay

21 Forecasting with Smooth Transition Autoregressive Models 485
Stefan Lundbergh and Timo Teräsvirta

22 Forecasting Financial Variables 510
Terence C. Mills

23 Explaining Forecast Failure in Macroeconomics 539
Michael P. Clements and David F. Hendry

Author Index 572

Subject Index 583