[position in research by date]
[position in research by subject]
"Comparing Information in Forecasts from Econometric
(with R. J. Shiller), The American Economic Review,
June 1990, 375-389.
pdf file (1,090KB).
The information contained in one model's forecast compared to that in
another can be assessed from a regression of actual values on predicted
values from the two models. We do this for forecasts of real GNP growth
rates for different pairs of models. The models include a structural
model (the Fair (1976) model), various versions of the vector
autoregressive (VAR) model, and various versions of a model we call the
"autoregressive components" (AC) model. Our procedure requires that
forecasts make no use of future information, and we have been careful
to try to insure this, including using the version of the Fair model
that existed in 1976, the beginning of our test period.
The method proposed in this paper is useful for comparing
forecasts from alternative
models, and I have used it in a number of applications aside
from those in this paper.
One other application is evaluating ex ante forecasts in
1989#1, and another is evaluating forecasts
from exchange rate equations in 1997#5.
The material in
Chapter 7, Section 7.8, and Chapter 8, Section 8.7, in
1994#2 is based on this paper.
A second contribution of this paper is to introduce the AC model, which
seems better than the VAR model in some cases.