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Unpredictability in Economic Analysis, Econometric Modeling and Forecasting

Author

Listed:
  • David F. Hendry

    (Department of Economics and Institute of Economic Modelling, Oxford Martin School, University of Oxford)

  • Grayham E. Mizon

    (University of Southampton and Institute of Economic Modelling, Oxford Martin School, University of Oxford)

Abstract
Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and unanticipated extrinsic shifts of distributions. We analyze their properties, relationships, and different effects on the three arenas in the title, which suggests considering three associated information sets. The implications of unanticipated shifts for forecasting, economic analyses of efficient markets, conditional expectations, and inter-temporal derivations are described. The potential success of general-to-specific model selection in tackling location shifts by impulse-indicator saturation is contrasted with the major difficulties confronting forecasting.

Suggested Citation

  • David F. Hendry & Grayham E. Mizon, 2013. "Unpredictability in Economic Analysis, Econometric Modeling and Forecasting," Economics Papers 2013-W04, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:1304
    as

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    File URL: http://www.nuffield.ox.ac.uk/Academic/Economics/Working%20Papers/Documents/2013/UnPredDFHGEM12.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Unpredictability; ‘Black Swans’; Distributional shifts; Forecast failure; Model selection; Conditional expectations.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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