Handbook of Economic Forecasting

Dedication

Introduction to the Series

Contributors

Section I: Macro Forecasting

Chapter 1. Forecasting Inflation

Abstract

1 Introduction

2 Approach for Our General Review

3 Market-Based Measures of the Inflation Outlook

4 Other Topics

5 International Inflation Forecasts

6 Conclusions

Acknowledgments

References

Chapter 2. DSGE Model-Based Forecasting

Abstract

1 Introduction

2 The DSGE Models

3 Generating Forecasts with DSGE Models

4 Accuracy of Point Forecasts

5 DSGE Model Forecasts Using External Information

6 Forecasts Conditional on Interest Rate Paths

7 Moving Beyond Point Forecasts

8 Outlook

Acknowledgments

Appendix A Details for Figure 2.5

References

Chapter 3. Forecasting Output

Abstract

1 Introduction

2 Forecasting Models

3 Forecast Comparison: Real-time Performance

4 Conclusion

Acknowledgments

References

Chapter 4. Now-Casting and the Real-Time Data Flow

Abstract

1 Introduction

2 Now-Casting: Problem and Overview of Approaches

3 Empirical Application

4 Conclusions and Discussion on Further Developments

Acknowledgments

Appendix A Appendix: Details on the State Space Representation and Estimation

References

Chapter 5. Forecasting and Policy Making

Abstract

1 Introduction

2 The Role of Forecasts in Policy Making: A Practical Example and a Theoretical Framework

3 Examples of Forecasts Produced at Fiscal Authorities and Central Banks

4 Empirical Evidence that Policymakers’ Decisions Respond to Forecasts

5 Computing Forecasts that Account for the Interaction with Policy Decisions

6 Evaluating the Performance of Policy Rules that Respond to Forecasts

7 Outlook

Acknowledgments

Appendix A A medium-scale DSGE model

References

Section II: Forecasting Financial Variables

Chapter 6. Forecasting Stock Returns

Abstract

1 Introduction

2 What Level of Predictability Should We Expect?

3 U.S. Aggregate Stock Market Return Forecastability

4 Stock Return Forecastability Along Other Dimensions

5 Conclusion

Acknowledgments

References

Chapter 7. Forecasting Interest Rates

Abstract

1 Introduction

2 Forecasting Methods from a Finance Perspective

3 Regression Approaches to Forecasting Treasury Yields

4 A Dynamic Term Structure Framework

5 Macro-Finance Models

6 Economic Fundamentals and Risk Premia

7 A Robustness Check

8 Concluding Comments

Acknowledgments

References

Chapter 8. Forecasting the Price of Oil

Abstract

1 Introduction

2 Alternative Oil Price Measures

3 Alternative Oil Price Specifications

4 Granger Causality Tests

5 Short-Horizon Forecasts of the Nominal Price of Oil

6 Long-Horizon Forecasts of the Nominal Price of Oil Based on Oil Futures Prices

7 Survey Forecasts of the Nominal Price of Oil

8 What Have We Learned about Forecasting the Nominal Price of Oil?

9 Short-Horizon Forecasts of the Real Price of Oil

10 What Have We Learned about Forecasting the Real Price of Oil?

11 Structural VAR Forecasts of the Real Price of Oil

12 The Ability of Oil Prices to Forecast U.S. Real GDP

13 The Role of Oil Price Volatility

14 Avenues for Future Research

15 Conclusions

Acknowledgments

References

Chapter 9. Forecasting Real Estate Prices

Abstract

1 Introduction

2 The Real Estate Data

3 Forecasting Real Estate Returns

4 REITs

5 Real Estate, Leverage, and Monetary Policy

6 Concluding Remarks

Appendix A Data sources

References

Chapter 10. Forecasting with Option-Implied Information

Abstract

1 Introduction

2 Extracting Volatility and Correlation from Option Prices

3 Extracting Skewness and Kurtosis from Option Prices

4 Extracting Densities from Option Prices

5 Allowing for Risk Premia

6 Summary and Discussion

Acknowledgment

References

Chapter 11. Prediction Markets for Economic Forecasting

Abstract

1 Introduction

2 Types of Prediction Markets

3 Why Prediction Markets Work

4 Forecast Accuracy

5 Discovering Economic Models

6 Conclusion

Acknowledgment

References

Section III: Forecasters’ Objectives

Chapter 12. Forecasters’ Objectives and Strategies

Abstract

1 Introduction

2 Model with Mixed Reputational and Contest Payoffs

3 Development of Reputational and Contest Theories

4 Equilibrium with Mixed Incentives

5 Estimation

6 Robustness and Extensions

7 Role of Anonymity

8 Summary and Outlook

Acknowledgments

References

Chapter 13. Forecasting Exchange Rates: an Investor Perspective

Abstract

1 Introduction

2 Successful Investing Does Not Require Beating a Random Walk

3 Constructing a Currency Portfolio

4 Benchmarks for Currency Investors

5 Forecast Skill Evaluation: Tilt and Timing

6 Enhancing Forecasts with Conditioners

7 Summary

References

Section IV: Methodology

Chapter 14. Variable Selection in Predictive Regressions

Abstract

1 Introduction

2 Criterion-Based Methods When N < T

3 Regularization Methods

4 Dimension Reduction Methods

5 Three Practical Problems

6 Conclusion

Acknowledgments

References

Chapter 15. Forecasting with Bayesian Vector Autoregression

Abstract

1 Introduction

2 Bayesian Forecasting and Computation

3 Reduced Form VARs

4 Structural VARs

5 Co-Integration

6 Conditional Forecasts

7 Time-Varying Parameters and Stochastic Volatility

8 Model and Variable Selection

9 High-Dimensional VARs

Acknowledgements

Appendix A Markov Chain Monte Carlo Methods

Appendix B State-Space Models

Appendix C Distributions

References

Chapter 16. Copula Methods for Forecasting Multivariate Time Series

Abstract

1 Introduction

2 Dependence Summary Statistics

3 Estimation and Inference for Copula Models

4 Model Selection and Goodness-of-Fit Testing

5 Other Issues in Applications

6 Applications of Copulas in Economics and Finance

7 Conclusions and Directions for Further Research

Acknowledgments

References

Chapter 17. Quantile Prediction

Abstract

1 Introduction

2 Prediction

3 Evaluation

4 Specific Issues

5 Conclusion and Directions for Future Research

Acknowledgments

References

Chapter 18. Panel Data Forecasting

Abstract

1 Introduction

2 The Best Linear Unbiased Predictor

3 Homogeneous versus Heterogeneous Panel Forecasts

4 Caveats, Related Studies, and Future Work

Acknowledgments

References

Chapter 19. Forecasting Binary Outcomes

Abstract

1 Introduction

2 Probability Predictions

3 Evaluation of Binary Event Predictions

4 Binary Point Predictions

5 Improving Binary Predictions

6 Conclusion

Acknowledgments

References

Chapter 20. Advances in Forecast Evaluation

Abstract

1 Introduction

2 Modeling and Forecasting Framework

3 Pairs of Models: Population-Level and Finite-Sample Inference

4 Unconditional Versus Conditional Evaluation

5 Evaluation of Multiple Forecasts

6 Evaluation of Real-Time Forecasts

7 Small-Sample Properties of Tests of Equal Predictive Ability

8 On the Choice of Sample Split

9 Why Do Out-of-Sample Forecast Evaluation?

10 Conclusion

11 Asymptotic Derivations for Out-of-Sample Inference: Examples

Acknowledgments

References

Chapter 21. Advances in Forecasting under Instability

Abstract

1 Introduction

2 Is the Predictive Content Unstable Over Time?

3 What is the Relationship Between in-sample and Out-of-sample Forecasting Ability in the Presence of Instabilities?

4 Empirical Evidence

5 Conclusions

Acknowledgments

Appendix 1 Critical Value Tables

References

Index