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Elliott, Graham, and
Allan Timmermann. 2008. "Economic Forecasting."
,
46(1): 3-56.
Show Article Details
DOI: 10.1257/jel.46.1.3
Abstract:Forecasts guide decisions in all areas of economics and finance and their value can
only be understood in relation to, and in the context of, such decisions. We discuss
the central role of the loss function in helping determine the forecaster's objectives.
Decision theory provides a framework for both the construction and evaluation of
forecasts. This framework allows an understanding of the challenges that arise from
the explosion in the sheer volume of predictor variables under consideration and the
forecaster's ability to entertain an endless array of forecasting models and time-varying
specifications, none of which may coincide with the "true" model. We show this
along with reviewing methods for comparing the forecasting performance of pairs
of models or evaluating the ability of the best of many models to beat a benchmark
specification.
Authors:
Elliott, Graham (U CA, San Diego)
Timmermann, Allan (U CA, San Diego and CREATES)
JEL Classifications:
C53: Forecasting and Other Model Applications
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