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Journal of Economic Literature: Vol. 46 No. 1 (March 2008)

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Economic Forecasting

Article Citation

Elliott, Graham, and Allan Timmermann. 2008. "Economic Forecasting." Journal of Economic Literature, 46(1): 3-56.

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.

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Authors

Elliott, Graham (U CA, San Diego)
Timmermann, Allan (U CA, San Diego and CREATES)

JEL Classifications

C53: Forecasting and Other Model Applications


Journal of Economic Literature


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