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Activity Number:
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312
- Macroeconomic Forecasting in Theory and Practice
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Type:
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Topic-Contributed
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Date/Time:
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Wednesday, August 11, 2021 : 3:30 PM to 5:20 PM
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Sponsor:
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Business and Economic Statistics Section
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Abstract #317087
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Title:
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Smooth Robust Multi-Horizon Forecasts
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Author(s):
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Andrew B Martinez* and Jennifer Castle and David F. Hendry
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Companies:
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US Department of the Treasury and Magdalen College and University of Oxford
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Keywords:
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Location Shifts;
Long differencing;
Productivity forecasts;
Robust Forecasts
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Abstract:
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We investigate whether smooth robust methods for forecasting can help mitigate pronounced and persistent failure across multiple forecast horizons. We demonstrate that naive predictors are interpretable as local estimators of the long-run relationship with the advantage of adapting quickly after a break, but at a cost of additional forecast error variance. Smoothing over naive estimates helps retain these advantages while reducing the costs, especially for longer forecast horizons. We derive the performance of these predictors after a location shift, and confirm the results using simulations. We apply smooth methods to forecasts of U.K. productivity and U.S. 10-year Treasury yields and show that they can dramatically reduce persistent forecast failure exhibited by forecasts from macroeconomic models and professional forecasters.
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Authors who are presenting talks have a * after their name.
