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Title:On economic evaluation of directional forecasts PDF Logo
Authors:Blaskowitz, Oliver J.
Herwartz, Helmut
Issue Date:2009
Series/Report no.:SFB 649 discussion paper 2009,052
Abstract:It is commonly accepted that information is helpful if it can be exploited to improve a decision making process. In economics, decisions are often based on forecasts of up- or downward movements of the variable of interest. We point out that directional forecasts can provide a useful framework to assess the economic forecast value when loss functions (or success measures) are properly formulated to account for realized signs and realized magnitudes of directional movements. We discuss a general approach to evaluate (directional) forecasts which is simple to implement, robust to outlying or unreasonable forecasts and which provides an economically interpretable loss/success functional framework. As such, the measure of directional forecast value is a readily available alternative to the commonly used squared error loss criterion.
Subjects:Directional forecasts
directional forecast value
forecast evaluation
economic forecast value
mean squared forecast error
mean absolute forecast error
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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