ECB paper: A new theory of forecasting

This ECB Working Paper argues that forecast estimators should minimise the loss function in a statistical, rather than deterministic, way.

The author introduces two new elements into the classical econometric analysis: a subjective guess on the variable to be forecasted and a probability reflecting the confidence associated to it. They then propose a new forecast estimator based on a test of whether the first derivatives of the loss function evaluated at the subjective guess are statistically

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