Abstract:
A sequence of large same-sign 1-step-ahead forecast errors occurring as the forecast origin advances signal a sudden location or trend shift. To test which, impulse indicators are included as intercept corrections to offset each forecast error, then replaced after 2 or 3 significant outcomes by a broken linear or log-linear trend, tested against each other and a step indicator. The approach is illustrated by quickly detecting a series of sudden shifts in the UK's inflation over 2021—24 then accurately forecasting multiple periods ahead as compared with Bank of England projections. Simulations and analyses confirm the general feasibility of detecting sudden trend changes after just 2 or 3 periods then forecasting reasonably accurately.