Measuring Predictability: Theory and Macroeconomic Applications / Francis X. Diebold, Lutz Kilian.

Format:

Book

Author/Creator:

Diebold, Francis X.

Contributor:

National Bureau of Economic Research.

Kilian, Lutz.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0213.

NBER technical working paper series no. t0213

Language:

English

Subjects (All):

Forecasting.

Prediction theory.

Econometric models.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Measuring Predictability

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Cambridge : National Bureau of Economic Research, 1997.

Summary:

We propose a measure of predictability based on the ratio of the expected loss of a short-run forecast to the expected loss of a long-run forecast. This predictability measure can be tailored to the forecast horizons of interest, and it allows for general loss functions, univariate or multivariate information sets, and stationary or nonstationary data. We propose a simple estimator, and we suggest resampling methods for inference. We then provide several macroeconomic applications. First, based on fitted parametric models, we assess the predictability of a variety of macroeconomic series. Second, we analyze the internal propagation mechanism of a standard dynamic macroeconomic model by comparing predictability of model inputs and model outputs. Third, we use predictability as a metric for assessing the similarity of data simulated from the model and actual data. Finally, we sketch several promising directions for future research.

Notes:

Print version record

August 1997.