On the problem of forecasting prior to 'price' control and decontrol

The paper treats the forecasting problem in the context of a demand or supply equation, when the explanatory variable z1 = xi′z + et – the ‘price’ variable – is controlled (exogenous) in the forecast period – Case A; or vice versa – Case B. In either case, at least some parameters need to shift in value from the sample to the forecast period, and the forecasts in general need to use prior information on the forecast period values of such parameters. The paper assumes that shifts occur only πz, V(et), and the reduced‐form parameters involved in the exogeneity restriction. When V(et) is the only parameter to shift, neither case calls for any prior information. In other instances, Case A is less demanding than Case B in terms of prior information needs. Among other things, the paper draws attention to the relevance of the distinction between a conditional forecast and a controlled forecast in Case B.