Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39335
Authors: 
Blaskowitz, Oliver J.
Herwartz, Helmut
Year of Publication: 
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
JEL: 
C52
E17
E27
E37
E47
F17
F37
F47
G17
Document Type: 
Working Paper

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