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An historical perspective on forecast errors

Clements, M. and Hendry, D. (2001) An historical perspective on forecast errors. National Institute Economic Review, 177. pp. 70-82.

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To link to this item DOI: 10.1177/002795010117700109


Using annual observations on industrial production over the last three centuries, and on GDP over a 100-year period, we seek an historical perspective on the forecastability of these UK output measures. The series are dominated by strong upward trends, so we consider various specifications of this, including the local linear trend structural time-series model, which allows the level and slope of the trend to vary. Our results are not unduly sensitive to how the trend in the series is modelled: the average sizes of the forecast errors of all models, and the wide span of prediction intervals, attests to a great deal of uncertainty in the economic environment. It appears that, from an historical perspective, the postwar period has been relatively more forecastable.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:35211

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