FORECAST (FORECASTING)

(Statistics) A forecast is a quantitative estimate (or set of estimates) about the likelihood of future events based on past and current information. This "past and current information" is specifically embodied in the structure of the econometric model used to generate the forecasts. By extrapolating the model out beyond the period over which it was estimated, we can use the information contained in it to make forecasts about future events. It is useful to distinguish between two types of forecasting, ex post and ex ante. In an ex post forecasts all values of dependent and independent variables are known with certainty and therefore provides a means of evaluating a forecasting model. Specifically, in an ex post forecast, a model will be estimated using observations excluding those in the ex post period, and then comparisons of the forecasts will be made to these actual values. An ex ante forecast predicts values of the dependent variable beyond the estimation period using values for the explanatory variables which may or may not be known with certainty.