On economic evaluation of directional forecasts

Arbeitspapier

It is commonly accepted that information is helpful if it can be exploited to improve a decision making process. In economics, decisions are often based on forecasts of up- or downward movements of the variable of interest. We point out that directional forecasts can provide a useful framework to assess the economic forecast value when loss functions (or success measures) are properly formulated to account for realized signs and realized magnitudes of directional movements. We discuss a general approach to evaluate (directional) forecasts which is simple to implement, robust to outlying or unreasonable forecasts and which provides an economically interpretable loss/success functional framework. As such, the measure of directional forecast value is a readily available alternative to the commonly used squared error loss criterion.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2009,052

Classification and Topics

• Classification: Wirtschaft ; Model Evaluation, Validation, and Selection ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Trade: Forecasting and Simulation ; International Finance Forecasting and Simulation: Models and Applications ; Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications ; Financial Forecasting and Simulation
• Subject: Directional forecasts ; directional forecast value ; forecast evaluation ; economic forecast value ; mean squared forecast error ; mean absolute forecast error ; Prognoseverfahren ; Bewertung ; Statistischer Fehler ; Theorie ; Zinsswap ; Prognose ; Schätzung ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blaskowitz, Oliver J. ; Herwartz, Helmut
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/39335
• Last update: 10.03.2025, 11:43 AM CET