nep-for New Economics Papers
on Forecasting
Issue of 2021‒09‒20
four papers chosen by
Rob J Hyndman
Monash University

  1. Predictability of Aggregated Time Series By Reinhard Ellwanger, Stephen Snudden
  2. Evaluating forecast performance with state dependence By Florens Odendahl; Barbara Rossi; Tatevik Sekhposyan
  3. Наукастинг темпов роста стоимостных объемов экспорта и импорта по товарным группам By Maiorova, Ksenia; Fokin, Nikita
  4. A General Framework to Forecast the Adoption of Novel Products: A Case of Autonomous Vehicles By Subodh Dubey; Ishant Sharma; Sabyasachee Mishra; Oded Cats; Prateek Bansal

  1. By: Reinhard Ellwanger, Stephen Snudden (Wilfrid Laurier University)
    Abstract: Macroeconomic series are often aggregated from higher-frequency data. We show that this seemingly innocent feature has far-reaching consequences for the predictability of such series. First, the series are predictable by construction. Second, conventional tests of predictability are less informative about the data-generating process than frequently assumed. Third, a simple improvement to the conventional test leads to a sizeable correction, making it necessary to re-evaluate existing forecasting approaches. Fourth, forecasting models should be estimated with end-of-period observations even when the goal is to forecast the aggregated series. We highlight the relevance of these insights for forecasts of several macroeconomic variables.
    Keywords: Forecasting and Prediction Methods, Interest Rates, Exchange Rates, Asset Prices, Oil Prices, Commodity Prices
    JEL: C1 C53 E47 F37 G17 Q47
    Date: 2021
  2. By: Florens Odendahl; Barbara Rossi; Tatevik Sekhposyan
    Abstract: We propose a novel forecast evaluation methodology to assess models' absolute and relative forecasting performance when it is a state-dependent function of economic variables. In our framework, the forecasting performance, measured by a forecast error loss function, is modeled via a hard or smooth threshold model with unknown threshold values. Existing tests either assume a constant out-of-sample forecast performance or use non-parametric techniques robust to time-variation; consequently, they may lack power against state-dependent predictability. Our tests can be applied to relative forecast comparisons, forecast encompassing, forecast efficiency, and, more generally, moment-based tests of forecast evaluation. Monte Carlo results suggest that our proposed tests perform well in finite samples and have better power than existing tests in selecting the best forecast or assessing its efficiency in the presence of state dependence. Our tests uncover "pockets of predictability" in U.S. equity premia; although the term spread is not a useful predictor on average over the sample, it forecasts significantly better than the benchmark forecast when real GDP growth is low. In addition, we find that leading indicators, such as measures of vacancy postings and new orders for durable goods, improve the forecasts of U.S. industrial production when financial conditions are tight.
    Keywords: State dependence, forecast evaluation, predictive ability testing, moment-based tests; pockets of predictability
    JEL: C52 C53 E17 G17
    Date: 2021–07
  3. By: Maiorova, Ksenia; Fokin, Nikita
    Abstract: In this paper we consider a set of machine learning and econometrics models, namely: Elastic Net, Random Forest, XGBoost and SSVS as applied to nowcasting a large dataset of USD volumes of Russian exports and imports by commodity group. We use lags of the volumes of export and import commodity groups, prices for some imported and exported goods and other variables, due to which the curse of dimensionality becomes quite acute. The models we use are very popular and have proven themselves well in forecasting in the presence of the curse of dimensionality, when the number of model parameters exceeds the number of observations. The best model is the weighted model of machine learning methods, which outperforms the ARIMA benchmark model in nowcasting the volume of both exports and imports. In the case of the largest commodities groups, we often get a significantly more accurate nowcasts then ARIMA model, according to the Diebold-Mariano test. In addition, nowcasts turns out to be quite close to the historical forecasts of the Bank of Russia, being constructed in similar conditions.
    Keywords: наукастинг; внешняя торговля; проклятие размерности; машинное обучение; российская экономика
    JEL: C52 C53 C55 F17
    Date: 2020–06
  4. By: Subodh Dubey; Ishant Sharma; Sabyasachee Mishra; Oded Cats; Prateek Bansal
    Abstract: Due to the unavailability of prototypes, the early adopters of novel products actively seek information from multiple sources (e.g., media and social networks) to minimize the potential risk. The existing behavior models not only fail to capture the information propagation within the individual's social network, but also they do not incorporate the impact of such word-of-mouth (WOM) dissemination on the consumer's risk preferences. Moreover, even cutting-edge forecasting models rely on crude/synthetic consumer behavior models. We propose a general framework to forecast the adoption of novel products by developing a new consumer behavior model and integrating it into a population-level agent-based model. Specifically, we extend the hybrid choice model to estimate consumer behavior, which incorporates social network effects and interplay between WOM and risk aversion. The calibrated consumer behavior model and synthetic population are passed through the agent-based model for forecasting the product market share. We apply the proposed framework to forecast the adoption of autonomous vehicles (AVs) in Nashville, USA. The consumer behavior model is calibrated with a stated preference survey data of 1,495 Nashville residents. The output of the agent-based model provides the effect of the purchase price, post-purchase satisfaction, and safety measures/regulations on the forecasted AV market share. With an annual AV price reduction of 5% at the initial purchase price of $40,000 and 90% of satisfied adopters, AVs are forecasted to attain around 85% market share in thirty years. These findings are crucial for policymakers to develop infrastructure plans and manufacturers to conduct an after-sales cost-benefit analysis.
    Date: 2021–09

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