The results of the ECM forecasts were compared to a
naive model forecast.
Since no comparison data were available for the majority of publication series, BLS projections also are weighed against the performance of a
naive model.
In all instances, the RMSE ratios are greater than or nearly indistinguishable from 1 and, hence, the
naive model outpredicts the factor models.
Table 2 section (c) summarizes the
naive model results for PDC among users.
Note that the
naive model had an accuracy of nearly 27 percent, far less than other models.
In the
naive model, the GDP growth forecast is recursively set equal to the average GDP growth rate over the past five years.
A
Naive model forecast maintains that the best forecast for the next day's or the next week's price is simply today's or this week's price.
To put this in perspective this model was compared with a
naive model based solely on the prior year's production.
It is also noted that the
naive model produces "backward looking" forecasts, since it utilizes the information in the past history of the actual T-bill rate, [R.
In my view customer-facing organisations such as food retailers go through a number of stages: from having a
naive model to a transactional one, then an enlighted one and finally reaching the nirvana of natural.
Our notion of robustness is that the model consistently lies near the top of performance lists of alternative models and is consistently more successful than models based only on past inflation, such as Atkeson and Ohanian's
naive model.
In particular, Atkeson and Ohanian (2001) present evidence indicating that one-year-ahead inflation forecasts from several NAIRU (nonaccelerating-inflation rate of unemployment) Phillips curves are no more accurate than those from a
naive model that predicts inflation next year will be the same as it had been over the past year.
