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Forecasting some low‐predictability time series using diffusion indices
Author(s) -
Brisson Marc,
Campbell Bryan,
Galbraith John W.
Publication year - 2003
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.872
Subject(s) - predictability , index (typography) , econometrics , diffusion , horizon , series (stratigraphy) , economics , time horizon , consensus forecast , investment (military) , value (mathematics) , time series , computer science , statistics , mathematics , finance , biology , world wide web , politics , political science , law , thermodynamics , paleontology , physics , geometry
The growth rates of real output and real investment are two macroeconomic time series which are particularly difficult to forecast. This paper considers the application of diffusion index forecasting models to this problem. We begin by characterizing the performance of standard forecasts, via recently‐introduced measures of predictability and the forecast content, noting the maximum horizon at which the forecasts have value. We then compare diffusion index forecasts with a variety of alternatives, including the forecasts made by the OECD. We find gains in forecast accuracy at short horizons from the diffusion index models, but do not find evidence that the maximum horizon for forecasts can be extended in this way. Copyright © 2003 John Wiley & Sons, Ltd.