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Forecasting with Econometric Models: An Evaluation

H. O. Stekler

Abstract

Since econometric models have been utilized to generate quantitative forecasts of aggregate economic activity, it is of interest to determine how well the existing models have performed this function. While several analyses of the Klein-Goldberger and the Suits models have been completed, the forecasting performance of other models has not been analyzed. Since the Klein-Goldberger and Suits models have already been discussed, our attention will be focused on six quarterly models whose predictive performance has not been previously evaluated. Prior to performing each evaluation, the main characteristics of the particular model will be reviewed, but the equation system itself will not be presented. This procedure will provide perspectives about the scope of the model, the period to which it was fit, and the type of predictions that it generated. Before presenting this analysis, it is, however, necessary to discuss the variety of methods that may be utilized to evaluate these models, for there is no consensus on the one best procedure to be used, and to provide caveats that should be considered in interpreting the results.