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An Open-model Forecast-error Taxonomy.

Abstract:

We develop forecast-error taxonomies when there are unmodeled variables, forecast ‘off-line’. We establish three surprising results. Even when an open system is correctly specified in-sample with zero intercepts, despite known future values of strongly exogenous variables, changes in dynamics can induce forecast failure when they have non-zero means. The additional impact on forecast failure of incorrectly omitting such variables depends only on shifts in their means. With no such shifts,...

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Volume:
552
Series:
Discussion paper series
Publication date:
2011-01-01
URN:
uuid:83f5c0b5-f9c8-47b5-a795-d00f500c1c04
Local pid:
oai:economics.ouls.ox.ac.uk:15187
Language:
English

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