Overview
Ray C. Fair is an economist at Yale University's Cowles Foundation for Research in Economics, known primarily for his large-scale macroeconometric model of the US economy (the "Fair model") and for methodological contributions to forecast evaluation and model comparison. His 1980 International Economic Review paper introduced the four-component stochastic-simulation decomposition of forecast uncertainty, which separates error-term randomness, coefficient uncertainty, exogenous-variable uncertainty, and misspecification into measurable quantities.
Key Contributions / Features
- Forecast uncertainty decomposition (Fair 1980): four-component stochastic-simulation framework; total variance = simulation variance + misspecification correction (eq. 4 or 5); constancy assumption for misspecification component.
- Fair macro model (Model I): 97 equations, 29 stochastic, 183 estimated coefficients, 60 exogenous variables; estimated 1954I–1977IV; used as the primary application vehicle in Fair (1980).
- Rolling-reestimation misspecification estimator: 35 iterations on the 1954I–1977IV sample to estimate d̄ᵢ(k), the mean outside-sample gap between ê² and σ̃².
- Empirical finding (Fair 1980, Table 2): Model I outperforms a naive AR(8) benchmark on 4 of 6 endogenous variables at 8-quarter-ahead horizons.
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