Bundesbank paper asks ‘how far can we forecast?’
Statistical tests imply forecasts typically become uninformative after just a few quarters
Research published by the Deutsche Bundesbank seeks to determine how far ahead economic forecasts cease to provide useful information.
How far can we forecast? by Jörg Breitung and Malte Knüppel outlines two statistical tests for the information content of forecasts. The authors note forecasts become unreliable when the forecast error variance becomes as large as the unconditional variance of the target variable. In other words, does the forecast contain any additional information “beyond that
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