method defining the type of Theil's two U measures, see Details. Default is 2.
na.rm
logical, indicating whether NA values should be stripped before the computation proceeds. If set to TRUE complete.cases out of cbind(x,y) will be used. Defaults to FALSE.
Details
Theil proposed two error measures, but at different times and under the same symbol U, which has caused some confusion.
U method=1 is taken from Theil (1958, pp. 31-42). a represents the actual observations and p the corresponding predictions. He left it open whether a and p should be used as absolute values or as observed and predicted changes.
Theil (1966, chapter 2) proposed U method=2 as a measure of forecast quality, "where Ai and Pi stand for a pair of predicted and observed changes."
As U_1 has some serious disadvantages (see Bliemel 1973) it is recommended to use U_2 (default).
References
Theil, H. (1958): Economic Forecasts and Policy. Amsterdam: North Holland.
Thiel, H. (1966): Applied Economic Forecasting. Chicago: Rand McNally.
Bliemel, F. (1973): Theil's Forecast Accuracy Coefficient: A Clarification, Journal of Marketing Research Vol. 10, No. 4 (Nov., 1973), pp. 444-446