Forecasts from a Nonparametric Approach: ACE

Abstract

selection algorithm like the state space models do. ACE does internally make use of the idea of cross validation, which is closely related to prediction error. We have carried that empirical philosophy over to the area of model selection and combined strongly held economic priors with a search for models with low values of the final prediction error criterion. Our model selection strategy was to consider only those models with homogeneity and per capita quantities. Because our interest is in prediction, we considered only those models in which the regressors would be predetermined.