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- Title
PITFALLS INECONOMETRICFORECASTINGWITH ILLUSTRATIONSFROMEXCHANGERATEECONOMICS.
- Authors
MERZA, EBRAHIM; MOOSA, IMAD A.
- Abstract
Pitfalls in econometric forecasting are illustrated with reference to the ability of economists to forecast exchange rates, which is bound to bring about the Meese-Rogoff puzzle that exchange rate forecasting models cannot outperform the random walk in out-of-sample forecasting. Loopholes in forecasting include the use of dynamic models to generate forecasts, taking the forward rate to be a forecaster, and invoking the concept of cointegration to resolve the MeeseRogoff puzzle. It is concluded that the flaws that can be detected easily in the forecasting literature provide a good enough reason for handling forecasts with care and that the way forward is to abandon the practice of producing allegedly precise point forecasts.
- Publication
International Economics / Economia Internazionale, 2023, Vol 76, Issue 2, p147
- ISSN
0012-981X
- Publication type
Article