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 ixPreface xiAcknowledgments xiii1 An Overview of Economic Forecasting 1Michael P. Clements and David F. Hendry2 Predictable Uncertainty in Economic Forecasting 19Neil R. Ericsson3 Density Forecasting: A Survey 45Anthony S. Tay and Kenneth F. Wallis4 Statistical Approaches to Modeling and Forecasting Time Series 69Diego J. Pedregal and Peter C. Young5 Forecasting with Structural Time-Series Models 105Tommaso Proietti6 Judgmental Forecasting 133Dilek Önkal-Atay, Mary E. Thomson, and Andrew C. Pollock7 Forecasting for Policy 152Adrian R. Pagan and John Robertson8 Forecasting Cointegrated VARMA Processes 179Helmut Lütkepohl9 Multi-Step Forecasting 206R.J. Bhansali10 The Rationality and Efficiency of Individuals’ Forecasts 222Herman O. Stekler11 Decision-Based Methods for Forecast Evaluation 241M. Hashem Pesaran and Spyros Skouras12 Forecast Combination and Encompassing 268Paul Newbold and David I. Harvey13 Testing Forecast Accuracy 284Roberto S. Mariano14 Inference About Predictive Ability 299Michael W. McCracken and Kenneth D. West15 Forecasting Competitions: Their Role in Improving Forecasting Practice and Research 322Robert Fildes and Keith Ord16 Empirical Comparisons of Inflation Models’ Forecast Accuracy 354Øyvind Eitrheim, Tore Anders Husebø, and Ragnar Nymoen17 The Forecasting Performance of the OECD Composite Leading Indicators for France, Germany, Italy, and the U.K. 386Gonzalo Camba-Mendez, George Kapetanios, Martin R. Weale, and Richard J. Smith18 Unit-Root Versus Deterministic Representations of Seasonality for Forecasting 409Denise R. Osborn19 Forecasting with Periodic Autoregressive Time-Series Models 432Philip Hans Franses and Richard Paap20 Nonlinear Models and Forecasting 453Ruey S. Tsay21 Forecasting with Smooth Transition Autoregressive Models 485Stefan Lundbergh and Timo Teräsvirta22 Forecasting Financial Variables 510Terence C. Mills23 Explaining Forecast Failure in Macroeconomics 539Michael P. Clements and David F. HendryAuthor Index 572Subject Index 583

"A Companion to Economic Forecasting offers an insightful and authoritative overview of the diverse issues, methods, and applications falling under the broad umbrella of economic and financial forecasting. It belongs on every practitioner's bookshelf, and on every student's reading list." Francis X. Diebold, University of Pennsylvania "Economic forecasting methods, models, applications, evaluation, and diagnostics, all in one encompassing volume by leaders in the field. This collection of lucid chapters defines where economic forecasting is today. An invaluable addition to the library of anyone working with economic data." Charles Nelson, University of Washington