nep-for New Economics Papers
on Forecasting
Issue of 2010‒02‒05
six papers chosen by
Rob J Hyndman
Monash University

  1. The power of weather By Christian Huurman Francesco Ravazzolo; Chen Zhou
  2. Assessing Predictive Content of the KOF Barometer in Real Time By Boriss Siliverstovs
  3. Are oil price forecasters finally right? Regressive expectations toward more fundamental values of the oil price By Reitz, Stefan; Rülke, Jan C.; Stadtmann, Georg
  4. The role of central bank transparency for guiding private sector forecasts By Michael Ehrmann; Sylvester Eijffinger; Marcel Fratzscher
  5. Forecasting with Equilibrium-correction Models during Structural Breaks By Jennifer L. Castle; Nicholas W.P. Fawcett; David F. Hendry
  6. Does the Interest Risk Premium Predict Housing Prices? By Gogas, Periklis; Pragidis, Ioannis

  1. By: Christian Huurman Francesco Ravazzolo; Chen Zhou
    Abstract: This paper examines the predictive power of weather for electricity prices in day- ahead markets in real time. We ¯nd that next-day weather forecasts improve the forecast accuracy of Scandinavian day-ahead electricity prices substantially in terms of point forecasts, suggesting that weather forecasts can price the weather premium. This improvement strengthens the con¯dence in the forecasting model, which results in high center-mass predictive densities. In density forecast, such a predictive density may not accommodate forecasting uncertainty well. Our density forecast analysis con¯rms this intuition by showing that incorporating weather forecasts in density forecasting does not deliver better density forecast performances.
    Keywords: Electricity prices; weather forecasts; point and density forecasts; GARCH models.
    Date: 2010–01
  2. By: Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: We investigate whether the KOF Barometer–a leading indicator regularly released by the KOF Swiss Economic Institute–can be useful for short-term out-of-sample prediction of year-on-year quarterly real GDP growth rates in Switzerland. We find that the KOF Barometer appears to be useful for prediction of GDP growth rates. Even the earliest forecasts, made seven months ahead of the first official GDP estimate, allow us to predict GDP growth rates more accurately than forecasts based on an univariate autoregressive model. At every subsequent forecast round as new monthly releases of the KOF Barometer become available we observe a steady increase in forecast accuracy.
    Keywords: Leading indicators, forecasting, Bayesian model averaging, Switzerland
    JEL: C53 C22
    Date: 2010–01
  3. By: Reitz, Stefan; Rülke, Jan C.; Stadtmann, Georg
    Abstract: We use oil price forecasts from the Consensus Economic Forecast poll to analyze how forecasters form their expectations. Our findings seem to indicate that the extrapolative as well as the regressive expectation formation hypothesis play a role. Standard measures of forecast accuracy reveal forecasters' underperformance relative to the random walk benchmark. However, this result appears to be biased due to peso problems. --
    Keywords: Oil price,survey data,forecast bias,peso problem
    JEL: F31 D84 C33
    Date: 2009
  4. By: Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Sylvester Eijffinger (Tilburg University, Koopmans building, Warandelaan 2, 5037 AB Tilburg, The Netherlands.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: There is a broad consensus in the literature that costs of information processing and acquisition may generate costly disagreements in expectations among economic agents, and that central banks may play a central role in reducing such dispersion in expectations. This paper analyses empirically whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables, using a large set of proxies for central bank transparency in 12 advanced economies. It finds evidence for a significant and sizeable effect of central bank transparency on forecast dispersion, be it by means of announcing a quantified inflation objective, other forms of communication, or by publishing central banks’ inflation and output forecasts. However, there also appear to be limits to central bank transparency, with decreasing marginal returns to enhancing (economic) transparency, and given our findings that disagreement among inflation expectations in the general public is not affected by the various central bank transparency measures analyzed in this paper. JEL Classification: E37, E52, C53.
    Keywords: central banking; transparency; disagreement; survey expectations; monetary policy; inflation targeting; central bank communication; forecasting.
    Date: 2010–01
  5. By: Jennifer L. Castle; Nicholas W.P. Fawcett; David F. Hendry
    Abstract: When location shifts occur, cointegration-based equilibrium-correction models (EqCMs) face forecasting problems. We consider alleviating such forecast failure by updating, intercept corrections, differencing, and estimating the future progress of an ‘internal’ break. Updating leads to a loss of cointegration when an EqCM suffers an equilibrium-mean shift, but helps when collinearities are changed by an ‘external’ break with the EqCM staying constant. Both mechanistic corrections help compared to retaining a pre-break estimated model, but an estimated model of the break process could outperform. We apply the approaches to EqCMs for UK M1, compared with updating a learning function as the break evolves.
    Keywords: Cointegration, Equilibrium-correction, Forecasting, Location shifts, Collinearity, M1
    JEL: C1 C53
    Date: 2010
  6. By: Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Pragidis, Ioannis (Democritus University of Thrace, Department of International Economic Relations and Development)
    Abstract: In this paper we examine the predictability power of long term risk premium over Housing prices in U.S.A. of a period of 19 years (1991-2009). For reasons that are cited clearly in the text, the interest rate risk premium is preferred over yield curve. Under a probit framework, it is tested whether recent housing pricing bust could have been predicted. We employ adaptive expectations for the formation of the agents’ short-term interest rate expectations. The ability to forecast such price changes is of great importance to investors and analysts of the housing market and for the design of financial institutions’ mortgage policy in a more prudential path.
    Keywords: Housing prices; risk premium; probit; forecasting
    JEL: D58 D74 E31 G21 G32 H20 R20
    Date: 2010–01–26

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