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Economic and Business Forecasting: Analyzing and Interpreting Econometric Results
book

Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

by John Silvia, Azhar Iqbal, Kaylyn Swankoski, Sarah Watt, Sam Bullard
March 2014
Beginner to intermediate content levelBeginner to intermediate
400 pages
11h 35m
English
Wiley
Content preview from Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

CHAPTER 12

A Multiple-Equations Approach to Long-Term Forecasting

Short-term forecasting is not the only important element of decision making. Several important decisions consider the longer-term economic outlook.1 For instance, a firm's budget, investment, and employment decisions often incorporate the economic outlook for the next five to seven years. Long-term forecasting of key economic and financial variables, therefore, plays a crucial role in public and private sector decision making. This chapter presents procedures useful to develop models for long-term economic and business forecasting, which differ in several ways from the steps of short-run forecasting.2

When building forecasting models for a longer time period, an analyst should keep a few important points in mind. First, the chances of significant changes in the economic environment are very high. Forecasting the value of the Standard & Poor's (S&P) 500 index a few years out is not easy because there is a high probability of significant changes in the model for equity returns. In January 2008, for example, the U.S. economy was in recession and the S&P 500 index was in bearish territory. If an analyst was trying to make a forecast for the S&P 500 index two years ahead, he or she would struggle with the assumptions. If the recession ended in 2008 and was followed by a strong recovery, the S&P 500 index would have quickly turned bullish. However, that was not the case.3 So longer-term forecasting is associated with higher ...

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Publisher Resources

ISBN: 9781118497098Purchase bookDownloads