CEA Economic Forecasting Techniques 5

Question 1

Bayesian Model Averaging (BMA) addresses model uncertainty in forecasting by:

Accepted Answer

Weighting forecasts from all candidate models by their posterior model probabilities

Answer

Selecting the single model with the highest posterior probability

Answer

Using cross-validation to select the best regularization parameter

Answer

Averaging only models that pass a significance threshold

Question 2

In long-horizon economic forecasting, which method is generally preferred over ARIMA models?

Accepted Answer

Structural economic models anchored by long-run theory

Answer

Exponential smoothing with fixed parameters

Answer

Simple random walk with no drift

Answer

Autoregressive models with very long lag lengths

Question 3

The concept of 'cointegration' is important in economic forecasting because cointegrated variables:

Accepted Answer

Share a long-run equilibrium relationship that constrains their joint dynamics

Answer

Must always be differenced before modeling

Answer

Are always stationary in levels

Answer

Cannot be used in VAR models

Question 4

Which of the following best describes 'judgmental adjustment' in economic forecasting?

Accepted Answer

Expert modification of model-based forecasts using information not captured by the model

Answer

Automated outlier correction using statistical rules

Answer

Backcasting to fill historical data gaps

Answer

Adjusting for data revisions using real-time databases

Question 5

In the context of real-time forecasting, 'data vintage' refers to:

Accepted Answer

The specific release of a data series available at a given point in time

Answer

The age of the statistical model being used

Answer

The number of periods used in model estimation

Answer

Annual revisions to national accounts methodology

Question 6

A forecaster observes that their model systematically underpredicts inflation during supply shocks. This systematic error is best described as:

Accepted Answer

Forecast bias

Answer

Random forecast noise

Answer

Overfitting

Answer

Parameter instability

Question 7

Which approach is most effective for forecasting rare economic events such as financial crises?

Accepted Answer

Tail-risk models, extreme value theory, or early warning systems using nonlinear indicators

Answer

Standard linear ARIMA models estimated on full sample

Answer

Simple random walk benchmarks

Answer

Fixed-effects panel models with annual data only