The choice between different techniques

This book has been concerned with the methods used in economic forecasting. For this final chapter we first consider the problem of choosing an appropriate technique. The remainder of the chapter examines current developments in forecasting methods (section 7.2), and the interaction between forecasting and government policy (section 7.3).

From our review of the benefits of combining forecasts in chapter 3 it is clear that in many circumstances no particular technique dominates all others. It should also be apparent that many of the studies which compare different methods of forecasting are not comprehensive in their coverage of these methods. Initially we will examine the general approaches to forecasting, with a view to seeing what sort of information is needed before they can be used, then we will review some evidence on what techniques are employed in practice and taught in universities and other institutions of higher education.

In chapter 1 we saw that there are various ways of classifying forecasting methods such as subjective versus model-based or causal versus non-causal. Here we will limit consideration to quantitative forecasts with particular reference to judgement, surveys, extrapolation procedures and econometric models. Starting with judgement and surveys, these require very little extra information since the respondents use their own methods of producing forecasts. In particular there is no need to have a past history of the event being forecast.