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I was using Eviews, and I noticed that there is 'dynamic forecast' and 'static forecast' in the option. But I don't know what is the difference, would any one tell what are they? But I know that both are one-step ahead forecast.

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    – user10525
    May 25 '12 at 15:48
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If it is one-step forecast then both forecasts are the same. The difference arises when forecasting further: "dynamic forecast" will take previously forecasted values while ""static forecast" will take actual values to make next step forecast.

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It is right that the one step ahead static and dynamic forecasts are similar. The difference arises because of their estimation procedure. Dynamic forecast uses the value of the previous forecasted value of the dependent variable to compute the next one. On the other hand static forecast uses the actual value for each subsequent forecast.

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I'm afraid this is an Eviews oddity, because "dynamic forecasting" is done with a STATIC estimation sample, while "static forecasting" is done with a DYNAMIC, moving estimation sample. I think it simpler to think this way:

(1) If we are forecasting x(T+1), x(T+2)... x(T+h), using information up to period T, we may have to do it recursively by using forecast of x(T+1) in order to forecast x(T+2) and so on.

(2) If we are forecasting x(T+1) using information up to time T, then forecasting x(T+2) using information up to period T+1 and so on, we may have to wait each step until we have updated information (or pretend we are waiting).

Call (1) "Forecast with a FIXED INFORMATION SET" by recursively using predicted values if needed. This is what EViews calls "dynamic forecasting".

Call (2) "Forecast with a MOVING ESTIMATION SAMPLE" one-step-ahead only (or, to be more general, with a fixed h-step-ahead). This is what EViews calls "static forecasting".

I'm I right?

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