Empirical evidence in much of economics focuses on quantifying the parameters of a preconceived theory. That works well when the theory is complete, correct and immutable, but not when it is incomplete, incorrect or changing, especially if unanticipated breaks perturb the assumed relationships. In practice, the available data must be used to discover what matters empirically: which variables are relevant; their dynamic reactions; the functional forms of connections; detecting multiple breaks and evolving distributions; tackling simultaneity and exogeneity; and modelling expectations. As economic data series are highly inter-correlated, all those influences must be tackled jointly. However, a key feature of the approach we have developed is that theory-relevant variables can be retained without selection while selecting over other candidate variables, some of which may even be endogenous. Under the null hypothesis that the candidate variables are irrelevant, by orthogonalizing them with respect to the theory-relevant variables, the estimator distributions of the theory parameters are unaffected by selection—even when selecting from more candidate variables than observations. Under the alternative, that some of the additional candidate variables are relevant, when the initial general model nests the generating process, an improved outcome results from selection. Our modelling approach, supported by stringent model evaluation techniques, tackles all the complications of ‘real world’ economies, to provide a viable framework for empirical modelling that avoids many of the difficulties faced by ‘conventional’ approaches. Intermittent unanticipated breaks also explain why economic forecasting has a poor track record, missing major changes then being systematically wrong. We are developing improved forecasting methods for rapidly adjusting during breaks and providing robust forecasts after shifts.
Project Leader / Primary Investigator
Prof. Sir David Hendry and Dr Jennifer Castle
Recent Publications
Jul 2025
Looking Back to 1991 Economic Forecasting: Introducing Cointegration
in Oxford Bulletin of Economics and Statistics
David F. Hendry
in Oxford Bulletin of Economics and Statistics
David F. Hendry
Jul 2025
Inconsistent survey histograms and point forecasts revisited
in Journal of Economic Behavior & Organization
Michael P. Clements
in Journal of Economic Behavior & Organization
Michael P. Clements
Mar 2025
Improving empirical models and forecasts with saturation-based machine learning
in Annals of Operations Research
Andrew Martinez , Neil Ericsson
in Annals of Operations Research
Andrew Martinez , Neil Ericsson
Feb 2025
Feb 2025
An Investigation into the Uncertainty Revision Process of Professional Forecasters
in Journal of Economic Dynamics and Control
Michael P. Clements , Robert W. Rich , Joseph Tracy
in Journal of Economic Dynamics and Control
Michael P. Clements , Robert W. Rich , Joseph Tracy
Jan 2025
Jan 2025
How the Bank of England could have avoided mis-forecasting UK inflation during 2021–24
Jennifer L. Castle , Jurgen Doornik , David F. Hendry
Jennifer L. Castle , Jurgen Doornik , David F. Hendry
Nov 2024
Jun 2024
Survey expectations and adjustments for multiple testing
in Journal of Economic Behavior & Organization
Michael P. Clements
in Journal of Economic Behavior & Organization
Michael P. Clements
May 2024
What a Puzzle! Unravelling Why UK Phillips Curves were Unstable
in Oxford Bulletin of Economics and Statistics
Jennifer L. Castle , David F. Hendry
in Oxford Bulletin of Economics and Statistics
Jennifer L. Castle , David F. Hendry
Dec 2023
Do professional forecasters believe in the Phillips curve?
in International Journal of Forecasting
Michael P. Clements
in International Journal of Forecasting
Michael P. Clements
Nov 2023
A Brief History of General-to-specific Modelling
in Oxford Bulletin of Economics and Statistics
David F. Hendry
in Oxford Bulletin of Economics and Statistics
David F. Hendry
Oct 2023
Improving models and forecasts after equilibrium-mean shifts
in International Journal of Forecasting
Jennifer L. Castle , Jurgen A Doornik , David F. Hendry
in International Journal of Forecasting
Jennifer L. Castle , Jurgen A Doornik , David F. Hendry
Aug 2023
The historical role of energy in UK inflation and productivity with implications for price inflation
in Energy Economics
Jennifer L. Castle , David F. Hendry , Andrew B. Martinez
in Energy Economics
Jennifer L. Castle , David F. Hendry , Andrew B. Martinez
Jun 2023
May 2023
Mar 2023
Modeling Price and Variance Jump Clustering Using the Marked Hawkes Process
in Journal of Financial Econometrics
Jian Chen , Michael P. Clements , Andrew Urquhart
in Journal of Financial Econometrics
Jian Chen , Michael P. Clements , Andrew Urquhart
Feb 2023
How local is the local inflation factor? Evidence from emerging European countries
in International Journal of Forecasting
Oguzhan Cepni , Michael P. Clements
in International Journal of Forecasting
Oguzhan Cepni , Michael P. Clements
Nov 2022
Forecasting GDP growth rates in the United States and Brazil using Google Trends
in International Journal of Forecasting
Evripidis Bantis , Michael P. Clements , Andrew Urquhart
in International Journal of Forecasting
Evripidis Bantis , Michael P. Clements , Andrew Urquhart
Nov 2022
Density forecasting with Bayesian Vector Autoregressive models under macroeconomic data uncertainty
in Journal of Applied Econometrics
Michael P. Clements , Ana Beatriz Galvão
in Journal of Applied Econometrics
Michael P. Clements , Ana Beatriz Galvão
Nov 2021
Forecaster Efficiency, Accuracy, and Disagreement: Evidence Using Individual-Level Survey Data
in Journal of Money, Credit and Banking
Michael P. Clements
in Journal of Money, Credit and Banking
Michael P. Clements
Sept 2021
Individual forecaster perceptions of the persistence of shocks to GDP
in Journal of Applied Econometrics
Michael P. Clements
in Journal of Applied Econometrics
Michael P. Clements
Jun 2021
Rounding behaviour of professional macro-forecasters
in International Journal of Forecasting
Michale P. Clements
in International Journal of Forecasting
Michale P. Clements
Jan 2021
Measuring the effects of expectations shocks
in Journal of Economic Dynamics and Control
Michael P. Clements , Ana Beatriz Galvão
in Journal of Economic Dynamics and Control
Michael P. Clements , Ana Beatriz Galvão
Sept 2020
Do survey joiners and leavers differ from regular participants? The US SPF GDP growth and inflation forecasts. International Journal of Forecasting
in International Journal of Forecasting
Michael P. Clements
in International Journal of Forecasting
Michael P. Clements
May 2020
Are Some Forecasters’ Probability Assessments of Macro Variables Better Than Those of Others?
in Econometrics
Michael P. Clements
in Econometrics
Michael P. Clements
Jul 2019
Do forecasters target first or later releases of national accounts data?
in International Journal of Forecasting
Michael P. Clements
in International Journal of Forecasting
Michael P. Clements
Apr 2019