Forecast encompassing tests and probability forecasts
Clements, Michael P. and Harvey, David Ian (2006) Forecast encompassing tests and probability forecasts. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.774).
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We consider tests of forecast encompassing for probability forecasts, for both quadratic and logarithmic scoring rules. We propose test statistics for the null of forecast encompassing, present the limiting distributions of the test statistics, and investigate the impact of estimating the forecasting models’ parameters on these distributions. The small-sample performance of the various statistics is investigated, both in terms of small numbers of forecasts and model estimation sample sizes. Two empirical applications show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables, and for evaluating survey-based probability forecasts.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Economic forecasting, Statistical hypothesis testing, Recessions, Business cycles, Economics -- Simulation methods|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||21 July 2006|
|Number of Pages:||36|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Anderson, H. M., and Vahid, F. (2001). Predicting the probability of a recession with nonlinear autoregressive leading indicator models. Macroeconomic Dynamics, 5, 482—505.
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