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Long-run restrictions and survey forecasts of output, consumption and investment

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  • Clements, Michael P.

Abstract

We consider the extent to which long-horizon survey forecasts of consumption, investment and output growth are consistent with theory-based steady-state values, and whether imposing these restrictions on long-horizon forecasts will enhance their accuracy. The restrictions that we impose are consistent with a two-sector model in which the variables grow at different rates in steady state. The restrictions are imposed by an exponential-tilting of simple auxiliary forecast densities. We show that imposing the consumption–output restriction yields modest improvements in the long-horizon output growth forecasts, and larger improvements in the forecasts of the cointegrating combination of consumption and output: the transformation of the data on which accuracy is assessed plays an important role.

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  • Clements, Michael P., 2016. "Long-run restrictions and survey forecasts of output, consumption and investment," International Journal of Forecasting, Elsevier, vol. 32(3), pages 614-628.
    • Handle: RePEc:eee:intfor:v:32:y:2016:i:3:p:614-628
    DOI: 10.1016/j.ijforecast.2015.10.005
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    Cited by:

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    3. Zhao, Yongchen, 2024. "Uncertainty of household inflation expectations: Reconciling point and density forecasts," Economics Letters, Elsevier, vol. 234(C).
    4. Kapetanios, George & Millard, Stephen & Petrova, Katerina & Price, Simon, 2020. "Time-varying cointegration with an application to the UK Great Ratios," Economics Letters, Elsevier, vol. 193(C).

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