Assessing the forecasting performance of a macroeconomic model

This article provides an answer to the question of how to improve the forec asting performance of a macromodel to better account for economic developme nts and how to evaluate the forecasting uncertainty. The main tool in this assessment is stochastic simulation. Stochastic simulations in this article involve both endogenous and exogenous variables. These simulations also al low us to assess the linearity of the model. Alternative dynamic simulation s may, in turn, give some idea of the stability of the model. Finally, the forecasts may be improved by comparing the outcomes from the macromodel and from a leading indicators' model. This kind of exercise is particularly us eful in assessing the developments in the short run, in which case the macr omodels typically perform rather poorly. (C) 1999 Society for Policy Modeli ng. Published by Elsevier Science Inc.