Research Discussion Paper – RDP 36 Techniques of Short Term Forecasting


“Many gifted individuals have successfully made important predictions about the future course of economic life … in a few cases (they) have consistently made accurate predictions over and over again. Unfortunately, the accomplishments at foresight of the gifted individuals have not been passed on to future generations in the form of systematic techniques that could be assimilated and applied by others. It is my belief that we have made progress in modern quantitative economics towards developing a scientific approach to economic prediction.”
L.R. Klein,[23] p.9

This paper discusses a number of the quantitative methods that are currently used as aids to forecasting. Particular emphasis is given to the use of econometric models and the paper draws on experience gained in using a medium sized model in the day-to-day preparation of short-term forecasts within the Reserve Bank.

This paper is the second in a proposed series of three. The first, “An Analysis of Econometric Ex-Post Forecasting Error”, was on the topic of analysing the error generating and transmitting mechanisms in econometric models and was issued as Research Discussion Paper No. 34 [7]. The third is to be on the topic of assessing the predictive performance of econometric models.