The application of econometric models to short-term forecasting, that is to say, forecasting up to one year ahead, has naturally enough been extensively discussed. Some of the discussion has centred on the usefulness of econometric models in general for this purpose as against other forecasting methods. It is clearly realised that short-term forecasting by means of non-econometric methods is not only possible but may give better results than are obtained by the use of econometric models. It is therefore quite legitimate to argue against the use of models in the realm of short-term forecasting. If, on the other hand, one
believes that econometric models can make a useful contribution in this field, then the question arises what kind of models are most appropriate for this purpose
