Lower bounds of uncertainty and upper limits on the accuracy of forecasts of macroeconomic variables

Olkhov, Victor (2024): Lower bounds of uncertainty and upper limits on the accuracy of forecasts of macroeconomic variables.

Abstract

This paper defines theoretical lower bounds of uncertainty of observations of macroeconomic variables that depend on statistical moments and correlations of random values and volumes of market trades. Any econometric assessments of macroeconomic variables have greater uncertainty. We consider macroeconomic variables as random that depend on random values and volumes of trades. To predict random macroeconomic variables, one should forecast their probabilities. Upper limits on the accuracy of the forecasts of probabilities of macroeconomic variables, prices, and returns depend on the number of predicted statistical moments. We consider economic obstacles that limit by the first two the number of predicted statistical moments. The accuracy of any forecasts of probabilities of random macroeconomic variables, prices, returns, and market trades doesn’t exceed the accuracy of Gaussian approximations. Any forecasts of macroeconomic variables have uncertainty higher than one determined by predictions of coefficients of variation of random values and volumes of trades.

• Item Type: MPRA Paper
• English Title: Lower Bounds of Uncertainty of Observations of Macroeconomic Variables and Upper Limits on the Accuracy of Their Forecasts
• Language: English
• Keywords: uncertainty of economic observations; accuracy of forecasts; random macroeconomic variables; market trades; prices and returns
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs; E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth ; Environmental Accounts; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E27 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; G - Financial Economics > G0 - General

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