Abstract
The paper considers the conjecture that forecasts from preferred economic models or theories d-separate forecasts from less preferred models or theories from the Actual realization of the variable for which a scientific explanation is sought. D-separation provides a succinct notion to represent forecast dominance of one set of forecasts over another; it provides, as well, a criterion for model preference as a fundamental device for progress in economic science. We demonstrate these ideas with examples from three areas of economic modeling.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Bessler D. A., Brandt J. A. (1981) Forecasting livestock prices with individual and composite methods. Applied Economics 13(4): 513–522
Bessler D. A., Brandt J. A. (1992) Analysis of forecasts of livestock prices. Journal of Economic Behavior and Organization 18: 249–263
Bessler D. A., Chamberlain P. J. (1988) Composite forecasting with dirichlet priors. Decision Sciences 19(4): 771–781
Bryant H. L., Bessler D. A., Haigh M. S. (2009) Disproving causal relationships using observational data. Oxford Bulletin of Economics and Statistics 71(3): 357–374
Chong Y. Y., Hendry D. F. (1986) Econometric evaluation of linear macro-economic models. Review of Economic Studies 53: 671–690
Clark T. E., McCracken M. W. (2001) Tests of equal forecast accuracy and encompassing for nested models. Journal of Econometrics 105: 85–110
Clements M., Hendry D. F. (1998) Forecasting economic time series. Cambridge University Press, Cambridge
DeFinetti B. (1974) Theory of probability: A critical introductory treatment (Vol. 1) (Antonio Machi and Adrian Smith, Trans.). Wiley, London
Doan T. (2009) RATS, version 7. Estima, Evanston
Freedman D. (1983) A note on screening regressions. The American Statistician 37: 152–155
Granger C. W. J. (2005) Modeling, evaluation, and methodology in the new century. Economic Inquiry 43: 1–12
Granger C. W. J., Newbold P. (1973) Some comments on the evaluation of economic forecasts. Applied Economics 5: 35–47
Granger C. W. J., Ramanathan R. (1984) Improved methods of combining forecasting. Journal of Forecasting 3: 197–204
Harvey D., Leybourne S. J., Newbold P. (1998) Tests for forecast encompassing. Journal of Boniness and Economic Statistics 16: 254–259
Harvey D., Newbold P. (2000) Tests for multiple forecast encompassing. Journal of Applied Econometrics 15: 471–482
Meehl P. E. (1954) Clinical versus statistical prediction: A theoretical analysis and a review of the evidence. University of Minnesota Press, Minneapolis, MN
Pearl J. (1988) Probabilistic reasoning in intelligent systems. Morgan Kaufmann, San Mateo, CA
Pearl J. (2000) Causality: Models, reasoning, and inference. Cambridge University Press, Cambridge, MA
Popper K. (1959) The logic of scientific discovery. Harper & Row, Inc, New York
Sims, C. (2002). The role of models and probabilities in the monetary policy process, Working paper, Princeton Center for Economic Policy Studies, October 2002.
Spirtes P., Glymour C., Scheines R. (2000) Causality, prediction, and search. MIT Press, Cambridge, MA
Verma, T., & Pearl J. (1988). Causal networks: Semantics and expressiveness. In Proceedings of the 4th conference on uncertainty in artificial intelligence (pp. 352–359), July, Cambridge, MA.
Wang Z. (2010) Directed graphs, information structure and forecast combinations: An empirical examination. Journal of Forecasting 29: 353–366
Wang Z., Bessler D. A. (2002) The homogeneity restriction and forecasting performance of VAR-type demand systems. Journal of Forecasting 21(3): 193–206
Author information
Authors and Affiliations
Corresponding author
Additional information
An early draft of this paper was presented at the 2009 SAS forecasting conference in Cary, North Carolina, USA.
Rights and permissions
About this article
Cite this article
Bessler, D.A., Wang, Z. D-separation, forecasting, and economic science: a conjecture. Theory Decis 73, 295–314 (2012). https://doi.org/10.1007/s11238-012-9305-8
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11238-012-9305-8