Template-type: ReDIF-Paper 1.0
Author-Name: David F. Hendry
Author-Workplace-Name: Department of Economics and Institute of Economic Modelling, Oxford Martin School, University of Oxford 
Author-Email:david.hendry@nuffield.ox.ac.uk
Author-Name: Grayham E. Mizon
Author-Workplace-Name: University of Southampton and Institute of Economic Modelling, Oxford Martin School, University of Oxford
Title: Unpredictability in Economic Analysis, Econometric Modeling and Forecasting
Abstract: Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and
unanticipated extrinsic shifts of distributions. We analyze their properties, relationships, and different
effects on the three arenas in the title, which suggests considering three associated information
sets. The implications of unanticipated shifts for forecasting, economic analyses of efficient markets,
conditional expectations, and inter-temporal derivations are described. The potential success
of general-to-specific model selection in tackling location shifts by impulse-indicator saturation is
contrasted with the major difficulties confronting forecasting.
Classification-JEL: C51, C22
Keywords: Unpredictability; ‘Black Swans’; Distributional shifts; Forecast failure; Model selection;
Conditional expectations.
Length: 25 pages
Creation-Date: 2013-02-25
Number: 2013-W04
File-URL: http://www.nuffield.ox.ac.uk/Academic/Economics/Working%20Papers/Documents/2013/UnPredDFHGEM12.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:1304