Work

A Novel Approach to Forecasting After Large Forecast Errors

Year: 2025

Type: article

Abstract: ABSTRACT A sequence of increasingly large same‐sign 1‐step‐ahead forecast errors are most likely due to a sudden unexpected shift. Large forecast errors can be expensive, but also contain valuable information. Impulse indicators acting as intercept corrections to set forecasts back on track can be quickly tested for replacing outliers, a location shift or broken trend, greatly improving forecast accuracy. The analysis is applied to forecasting the UK's annual consumer price inflation which rose rapidly from mid‐2021 to over 9% in 2022 after a series of essentially unpredictable shocks led to large forecast errors by the Bank of England.

Source: Journal of Forecasting

DOI: 10.1002/for.70062

Authors: Jennifer L. Castle, Jurgen A. Doornik, David F. Hendry

Institution: University of Oxford

Language: English

Topic: Forecasting Techniques and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,400

Funders: University of Oxford, Norges Forskningsråd, Nuffield College, University of Oxford