How can one measure the success or failure of forecasts

A forecast might reasonably be judged successful if it was close to the outcome, but that judgment depends on how close is measured. Reconsider our example of guessing the distance to the moon it is apparent that accuracy and precision are two dimensions along which forecasts may be judged. To the layman, a very precise forecast that is highly inaccurate might be thought undesirable, as might an accurate but very imprecise forecast and experts concur - the gold standard is an accurate and...

What type of forecasting system is desirable

Often forecasting is performed in different sections of a policy-making institution, each with responsibilities for specific parts of the forecast horizon. In particular, it is very common to have two sections. One section concentrates upon modeling of the whole system with a core model, adopting an horizon that is longer than six months, while the other focuses upon the initial six months. This latter group generally employs either an indicator or spreadsheet model, but also uses a good deal...

BEA Auto Unit Sales

We now provide an example of univariate modeling and forecasting with structural time-series models with respect to the monthly domestic auto unit sales made available by the U.S. Bureau of Economic Analysis (BEA) at the URL http www.bea.doc.gov bea pn ndn0207.exe. The series covers the sample period 1967.1-1998.6, and is an extension of that studied in Findley et al. (1998), to compare a subjective pre-adjustment made by an expert analyst and an objective one, based upon five user-defined...

Density forecasts from options prices

A recent development is the derivation of density forecasts from the information about market participants' perceptions of the underlying asset price distribution contained in option market data. Soderlind and Svensson 1997 describe how methods of extracting information about market expectations from asset prices for monetary policy purposes have developed from the estimation of expected means of future interest rates and exchange rates from forward rates to estimation of their complete...