David Hendry's 1997-98 Annual Research Report

David Hendry (Professorial Fellow) continued his research on the ‘Econometrics of Economic Forecasting’ under a Leverhulme Personal Research Professorship. This work, jointly with A Banerjee, M P Clements, H-M Krolzig, and G E Mizon under an ESRC-financed project of that title, explored the implications of shifts in equilibrium means as the primary determinants of systematic forecast failure, and examined what determined success in forecasting competitions, where different models, or classes of model, are compared on a range of forecast criteria. Although our earlier research had revealed that ‘causal variables’ cannot be relied on to forecast well when deterministic shifts occur, work with N R Ericsson and G E Mizon related causality to co-breaking, and tested the resulting theory on small monetary models of the UK over the last century. His research on the Nuffield ESRC financed project, ‘Modelling Non-stationarity in Economic Time Series’ (with G Cameron, J A Doornik, J N J Muellbauer, and B Nielsen), focused on completing two studies of money demand over the last century in the UK. Given its important role in the setting of interest rates, he also began modelling the determinants of inflation in the UK since 1870. The impacts of deterministic factors on the estimation of cointegration rank were analyzed.

He delivered the Zeuthen Lectures on Economic Forecasting at Copenhagen University, which forms the basis for a second book on economic forecasting with M P Clements, extending the analysis to closed non-stationary systems subject to structural breaks. The book provided the material for a series of six lectures at the European University Institute, four lectures at the Scandinavian Econometrics Meeting in Lund, and for a two-day course at The Bank of England (jointly with M P Clements). He gave an address to the International Forecasting Symposium in Edinburgh, and presented papers at the following conferences: Money-demand Conference, Berlin; CIDE Anniversary Meeting, Bologna; Econometrics Study Group, Bristol; ESRC Macro-modelling Conference, London; Forecasting Workshop, Sydney; Macro-modelling Bureau Conference, Warwick.

He presented seminars the Universities of Bocconi, Milan; Dundee; Monash, Melbourne; Nottingham; St Andrews; and at the Australian National University, Canberra; European University Institute, Florence; Stockholm School of Economics; Bank of Norway, Oslo; and the University of Technology, Sydney.