Forecasting Breaks and Forecasting During Breaks

Jennifer L. Castle, Nicholas W. P. Fawcett and David F. Hendry

in The Oxford Handbook of Economic Forecasting

Published in print July 2011 | ISBN: 9780195398649
Published online September 2012 | | DOI:

Series: Oxford Handbooks

Forecasting Breaks and Forecasting During Breaks

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  • Economics
  • Econometric and Statistical Methods and Methodology: General



This article, which proposes a new approach to forecasting breaks by focusing on the role of information, begins by outlining the eight conditions that are necessary to successfully forecast a break. Section 2 then considers the concepts of unpredictability and information to address the first necessary condition. Section 3 separates information into two distinct sets, namely the regular economic forces affecting agents' behavior, and potentially very different information from politics, law, financial innovation, or technology, about events that cause sudden shifts in the regular determinants. Section 4 provides an overview of some potential sources for this second source of information in the context of economics. Having established the potential satisfaction of the first three conditions, Section 5 considers how to formulate a relevant (nonlinear) model class. Section 6 discusses model selection. Section 7 investigates forecasting breaks and forecasting during breaks. Section 8 draws some implications for economic modeling, forecasting, and policy analysis, while Section 9 concludes.

Keywords: economic forecasting; structural break; economic forecast

Article.  16707 words. 

Subjects: Economics ; Econometric and Statistical Methods and Methodology: General

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