Forecast Robustness in Macroeconometric Models

Abstract

This paper investigates potential invariance of mean forecast errors to structural breaks in the data generating process. From the general forecasting literature, such robustness is expected to be a rare occurrence. With the aid of a stylized macro model we are able to identify some economically relevant cases of robustness and to interpret them economically. We give an interpretation in terms of co-breaking. The analytical results resound well with the forecasting record of a medium-scale econometric model of the Norwegian economy.