Prediction: The Long and the Short of It

Commentators often lament forecasters’ inability to provide precise predictions of the long-run behavior complex economic and physical systems. Yet their concerns conflate presence substantial uncertainty with need for predictability; short-run can partially substitute if decision-makers adjust activities over time. So what is relative importance short- predictability? We study this question in a model rational dynamic adjustment changing environment. Even costs, discount factors, are large, predictability be much more important than predictability. (JEL D21, D81, D83)