Monday, July 10, 2017

Does information equilibrium add information?

I've been asked several times about the utility of the forecasts I make with the information equilibrium (IE) model. I came up with a good way to quantify it for the US 10 year interest rate forecast I made nearly 2 years ago. Here I've compared the IE model (free) to both the Blue Chip Economic Indicators (BCEI, for which the editors charge almost 1500 dollars per year) and a simple ARIMA process:

As you can see, the IE model represents a considerable restriction of the uncertainty relative to the ARIMA model (which is to say it adds bits of information/erases bits of randomness ‒ which explains the bad pun in the title of this post).

Also, I ran the model for the UK (belatedly fulfilling a request from a commenter). I had NGDP and monetary base data up until the start of 2017 so the prediction starts from there. I show both the longer view and the more recent view:

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