Lawrence R. Klein’s Principles in Modeling and Contributions in Nowcasting, Real-Time Forecasting, and Machine Learning

Abstract

Lawrence R. Klein (September 14, 1920 – October 20, 2013), Nobel Laureate in Economic Sciences in 1980, was one of the leading figures in macro-econometric modeling. Although his contributions to forecasting using simultaneous equations macro models were very well known, his contributions to nowcasting and real-time forecasting, that he worked on in the last 30 years of his life, were generally overlooked by many researchers. The reasons for the miss are related to the ambiguity in terminology, specifically, the terms nowcast or nowcasting, and the empirical, though very significant, nature of his contributions. This paper reviews L. R. Klein’s guiding principles on modeling and his contributions to nowcasting and real-time forecasting, and discusses the connection of these contributions to the present state of fast evolving disciplines, such as economics, econometrics, statistics, data science, and machine learning. In so doing, we argue that L. R. Klein indeed expertly developed pioneering ideas and methodology for nowcasting and real-time forecasting; and the principles and contributions put forward by him are even more relevant now than ever.