nep-for New Economics Papers
on Forecasting
Issue of 2005‒09‒11
ten papers chosen by
Rob J Hyndman
Monash University

  1. Modelling and forecasting short-term electricity load: a two step methodology By Lacir J. Soares; Marcelo Cunha Medeiros
  2. On the Estimation and Forecasting of International Migration: How Relevant Is Heterogeneity Across Countries? By Herbert Brücker; Boriss Siliverstovs
  6. Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better? By Andrew Ang; Geert Bekaert; Min Wei
  8. Survey Expectations By M. Hashem Pesaran; Martin Weale
  9. Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be? By Sebastian Edwards
  10. Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond By James J. Heckman; Lance J. Lochner; Petra E. Todd

  1. By: Lacir J. Soares (Department of Electrical Engineering); Marcelo Cunha Medeiros (Department of Economics PUC-Rio)
    Abstract: The goal of this paper is to develop a forecasting model of the hourly electricity load demand in the area covered by an utility company located in the southeast of Brazil. A di®erent model is constructed for each hour of day, thus there are 24 di®erent models. Each model is based on a decomposition of the daily series of each hour in two components. The ¯rst component is purely deterministic and is related to trends, seasonality, and special days e®ect. The second one is stochastic and follows a linear autoregressive model. The multi-step forecasting performance of the proposed methodology is compared with a benchmark model and the results indicate that our proposal is a useful tool for electricity load forecasting.
    Date: 2005–02
  2. By: Herbert Brücker (DIW Berlin and IZA Bonn); Boriss Siliverstovs (DIW Berlin)
    Abstract: This paper performs a comparative analysis of estimation as well as of out-of-sample forecasting results of more than 20 estimators common in the panel data literature using the data on migration to Germany from 18 source countries in the period 1967-2001. Our results suggest that the choice of an estimation procedure has a substantial impact on the parameter estimates of the migration function. Out-of-sample forecasting results indicate the following: (i) the standard fixed effects estimators clearly outperforms the pooled OLS estimator, (ii) both the fixed effects estimators and the hierarchical Bayes estimator exhibit the superior forecast performance, (iii) the fixed effects estimators outperform GMM and other instrumental variables estimators, (iv) forecasting performance of heterogenous estimators is mediocre in our data set.
    Keywords: international migration, panel data, forecasting
    JEL: C23 C53 F22
    Date: 2005–07
  3. By: Warwick J. McKibbin
    Abstract: The world is in the midst of a significant demographic transition with important implications for the macroeconomic performance of the global economy. This paper summarizes the key features of the current and projected future demographic change that are likely to have macroeconomic effects. It then develops and applies a new ten regions DSGE model (the MSG3 model) incorporating demographic dynamics, to examine the impacts of projected global demographic change on the world economy from 2005 to 2100. The focus in this paper is on Japan and the effects of demographic change on recent Japanese macroeconomic performance as well as projected performance over the remainder of this century. A distinction is made between the effects on Japan of demographic change that occurs in Japan and the effects on Japan of the equally large demographic changes occurring in the rest of the world.
    Date: 2005–06
  4. By: Warwick J. McKibbin; Alison Stegman
    Abstract: The notion of "convergence" of economic variables across countries is a useful concept and in the case of income per capita, a well studied area. If there is empirical evidence of convergence of some economic variables across countries, then our ability to prdict the future (or at least difference between countries in the future) is enhanced. It is common in long run projections of climate change to base these projections on some notion of full or partial convergence whether in incomes per capita, teachnologies, energy intensities, emissions intensities of energy or per capita carbon emissions. But what is the empirical basis of these assumptions? This paper explores the historical experience of a range of variables related to climate change projections with the goal of examining if there is any evidence historically of convergence. The focus of the paper is on per capita carbon emissions from fossil fuel use because this is the basis of many projections as well as a variety of policy proposals. We also present evidence on GDP per capita, energy intensity of output and the emissions intensity o energy supply. We find strong evidence that the wide variety of assumptions about "convergence" commonly used in emissions projections are not based on empirically observed phenomena.
    JEL: C50 C68 F01 F43 Q54 Q56
    Date: 2005–05
  5. By: Alison Stegman
    Abstract: Convergence in cross country per capita carbon emission rates is an important concept the climate change debate. This paper provides an empirical analysis of emissions per capita convergence. This analysis is crucial to the assessment of projection models that generate convergence in emission per capita rates and to the assessment of policy proposals that advocate imposing convergence in emissions per capita. The main conclusions in this paper are based on a details examination of the intra-distributional dynamics of cross country emissions per capita over time. Stochastic kernel estimation of these dynamics suggests that the cross country distribution of emissions per capita is characterised by persistence. There is little evidence that emission per capita rates across countries are converging in an absolute sense. Projection models that generate convergence in emissions per capita are therefore inconsistent with empirical behaviour. Policies that impose convergence in emissions per capita are likely to generate large re-distributional impacts.
    JEL: C10 C14 Q54
    Date: 2005–05
  6. By: Andrew Ang; Geert Bekaert; Min Wei
    Abstract: Surveys do! We examine the forecasting power of four alternative methods of forecasting U.S. inflation out-of-sample: time series ARIMA models; regressions using real activity measures motivated from the Phillips curve; term structure models that include linear, non-linear, and arbitrage-free specifications; and survey-based measures. We also investigate several optimal methods of combining forecasts. Our results show that surveys outperform the other forecasting methods and that the term structure specifications perform relatively poorly. We find little evidence that combining forecasts using means or medians, or using optimal weights with prior information produces superior forecasts to survey information alone. When combining forecasts, the data consistently places the highest weights on survey information.
    JEL: E31 E37 E43 E44
    Date: 2005–08
  7. By: Graham Elliott; Ivana Komunjer; Allan Timmermann
    Abstract: Empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational. We establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric. We quantify the exact trade-off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case. An empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss.
    Date: 2005–05
  8. By: M. Hashem Pesaran; Martin Weale
    Abstract: This paper focuses on survey expectations and discusses their uses for testing and modeling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectations rather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectations are reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper then provides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting.
    Keywords: models of expectation formation, survey data, heterogeneity, tests of rational expectations
    JEL: C40 C50 C53 C80
    Date: 2005–08
  9. By: Sebastian Edwards
    Abstract: In this paper I analyze the relationship between the U.S. dollar and the U.S. current account. I deal with issues of sustainability, and I discuss the mechanics of current account adjustment. The analysis presented in this paper differs from other work in several respects: First, I emphasis the dynamics of the current account adjustment, going beyond computations of the "required" real depreciation of the dollar to achieve sustainability. I show that even if foreigners' (net) demand for U.S. assets continues to increase significantly, the current account deficit is likely to experience a large decline in the (not too distant) future. Second, I rely on international evidence to explore the likelihood of an abrupt decline in capital flows into the U.S. And third, I analyze the international evidence on current account reversals, to investigate the potential consequences of a (possible) sudden stop of capital flows into the U.S. This analysis suggests that the future adjustment of the U.S. external accounts is likely to result in a significant reduction in growth.
    JEL: F02 F43 O11
    Date: 2005–08
  10. By: James J. Heckman; Lance J. Lochner; Petra E. Todd
    Abstract: This paper considers the interpretation of "Mincer rates of return." We test and reject the Mincer model. It fails to track the time series of true returns. We show how repeated cross section and panel data improves the ability of analysts to estimate the ex ante and ex post marginal rate of returns. Accounting for sequential revelation of information calls into question the validity of the internal rate of return as a tool for policy analysis. The large estimated psychic costs of schooling found in recent work helps to explain why persons do not attend school even though the financial rewards for doing so are high. We present methods for computing distributions of ex post and ex ante returns.
    JEL: C31
    Date: 2005–08

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