2 edition of **Tests for forecast encompassing** found in the catalog.

Tests for forecast encompassing

David I. Harvey

- 106 Want to read
- 9 Currently reading

Published
**1997**
by Loughborough University, Department of Economics in Loughborough
.

Written in English

**Edition Notes**

Statement | David I. Harvey, Stephen J. Leybourne, and Paul Newbold. |

Series | Economics research paper / Loughborough University, Department of Economics -- no.97/24, Economics research paper (Loughborough University, Department of Economics) -- no.97/24. |

Contributions | Leybourne, Stephen J., Newbold, Paul., Loughborough University. Department of Economics. |

ID Numbers | |
---|---|

Open Library | OL17244958M |

Summary. Tests for parameter constancy and the ability to encompass rival models are important parts of model evaluation. It is shown that the recently proposed forecast-encompassing test statistics have implicit null hypotheses that combine hypotheses of parameter constancy and complete parametric :// The asymptotic tests developed by McCracken are extended to multi-step forecast horizons. Monte Carlo simulations show that using asymptotically invalid tests can produce misleading inferences in small samples. The simulations also indicate that out-of-sample F -type and encompassing tests can be more powerful than standard F -tests of ://

This is in spite of considerable theoretical advances in the econometric methodology, namely the development and use of non‐nested and encompassing tests. Chong and Hendry () advocate the use of the forecast encompassing regressions, where the outturns are regressed on competing (one‐step‐ahead) :// The use of encompassing tests for forecast combinations The use of encompassing tests for forecast combinations Kışınbay, Turgut This paper proposes an algorithm that uses forecast encompassing tests for combining forecasts when there are a large number of forecasts that might enter the combination. The algorithm excludes

4. Forecast encompassing. Forecast encompassing tests seek to evaluate whether competing forecasts may be fruitfully combined to produce a forecast superior to individual forecasts. Such tests can be implemented by regressing the actual level of X t (or ON COMPARING MACROECONOMIC MODELS USING FORECAST ENCOMPASSING TESTS

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combined forecast that blends the useful information of the two (or more) forecasts. This paper proposes an algorithm that uses encompassing tests to combine forecasts. The algorithm is based on a simple idea: if a forecast is encompassed by another, it is excluded from the combination.

Once all the encompassed forecasts are eliminated, the 2. Forecast encompassing tests. To present forecasting encompassing in an accessible fashion, it is useful to add empirical examples to the material provided in the journal articles introducing the alternative tests available.

Two prominent forecast encompassing tests are those of Fair and Shiller () and Chong and Hendry (). previous section, the main ingredient of forecast encompassing tests is the speciﬁcation.

of the underlying loss function, which has to be asso ciated with the risk measures (:// Thus while probability forecast encompassing tests can still be conducted in a linear combination setting (see Clements and Harvey, ), when a broader range of combination methods is admitted The authors consider the situation in which two forecasts of the same variable are available.

The possibility exists of forming a combined forecast as a weighted average of the individual ones and estimation the weights that should be optimally attached to each forecast.

If the entire weight should optimally be associated with one forecast, that forecast is said to encompass the :// A natural test for forecast encompassing is based on least squares regression. We find, however, that the null distribution of this test statistic is not robust to nonnormality in the forecast errors.

We discuss several alternative tests that are :// I compare the forecasts using MSFE, perform tests of predictive accuracy and forecast encompassing to determine whether unemployment rate is useful in predicting inflation rate.

Because the VAR model nests the AR model, I assess the significance of the test statistic using appropriate critical values provided inandClark and McCracken (). I then constructed test statistics for forecast accuracy and forecast encompassing to determine whether unemployment rate is useful for forecasting inflation rate.

References. Clark, T. E., and M. McCracken. Tests of equal forecast accuracy and encompassing for nested models. Journal of Econometrics 85– West: Tests for Forecast Encompassing When Forecasts Depend on Estimated Regression Parameters 31 2.

SIMULATION RESULTS To get a sense of whether the asymptotic approximation is helpful in samples of typical size, I performed a small Monte Carlo experiment. As in HLN (), I tried prediction sam- ple sizes n = 8, 16, 32, 64,and ~kwest/publications//Tests for Forecast Encompassing when. Downloadable.

We introduce new forecast encompassing tests for the risk measure Expected Shortfall (ES). The ES currently receives much attention through its introduction into the Basel III Accords, which stipulate its use as the primary market risk measure for the international banking regulation.

We utilize joint loss functions for the pair ES and Value at Risk to set up three ES 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 :// 3 Forecast encompassing and RMSFE The aim of this section is to deﬁne the theoretical linkages between two most used criteria for forecast evaluation, the forecast encompassing test and the min-imizing the RMSFE.

Using RMSFE and encompassing tests as complementary rather than competing forecast criteria stems from a theoretical contribution Abstract. 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 iano () test for equal forecast accuracy to the problem of testing for forecast encompassing.

3 Forecast encompassing tests and probability forecasts In this section we consider the validity of the forecast encompassing testing approaches de-scribed above when applied to probability forecasts. The testing approaches are analysed for a CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): 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 ?doi= Tests for forecast encompassing when forecasts depend on estimated regression parameters, manuscript, ().

Tests for forecast encompassing, (). Tests for parameter instability and structural change with unknown change point, (). The Fed funds futures rate as a predictor of Federal Reserve policy, We introduce new forecast encompassing tests for the risk measure Expected Shortfall (ES).

The ES currently receives much attention through its introduction into the Basel III Accords, which stipulate its use as the primary market risk measure for the international banking regulation. We utilize joint loss functions for the pair ES and Value at Risk to set up three ES encompassing test Get this from a library.

The use of encompassing tests for forecast combinations. [Turgut Kışınbay; International Monetary Fund. Monetary and Capital Markets Department,] -- The paper proposes an algorithm that uses forecast encompassing tests for combining forecasts. The algorithm excludes a forecast from the combination if it is encompassed by another :// 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 Forecast encompassing tests and probability forecasts Forecast encompassing tests and probability forecasts Clements, Michael P.; Harvey, David I.

INTRODUCTION There is an extensive literature in economic and management science attesting to the usefulness of forecast combination. 1 That is, a linear combination of two or more forecasts may often yield more accurate. We examine the asymptotic and finite-sample properties of tests for equal forecast accuracy and encompassing applied to 1-step ahead forecasts from nested linear models.

We first derive the asymptotic distributions of two standard tests and one new test of encompassing and provide tables of asymptotically valid critical :// Kenneth D. West “Tests For Forecast Encompassing When Forecasts Depend on Estimated Regression Parameters” June Additional Appendix This additional appendix presents not-for-publication tables of simulation results for alternative estimators of S, for nominal tests, and for simulations with t(6) data.

All ~kwest/appendices/Forecast combination is often found to improve forecast accuracy. This chapter considers different types of forecast combination and tests of forecast encompassing.

The latter indicate when a