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Conditional predictive density evaluation in the presence of instabilities

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  • Rossi, Barbara
  • Sekhposyan, Tatevik

Abstract

We propose new methods for evaluating predictive densities. The methods include Kolmogorov–Smirnov and Cramér–von Mises-type tests for the correct specification of predictive densities robust to dynamic mis-specification. The novelty is that the tests can detect mis-specification in the predictive densities even if it appears only over a fraction of the sample, due to the presence of instabilities. Our results indicate that our tests are well sized and have good power in detecting mis-specification in predictive densities, even when it is time-varying. An application to density forecasts of the Survey of Professional Forecasters demonstrates the usefulness of the proposed methodologies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 177 (2013)
Issue (Month): 2 ()
Pages: 199-212

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Handle: RePEc:eee:econom:v:177:y:2013:i:2:p:199-212

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Predictive density; Dynamic mis-specification; Instability; Structural change; Forecast evaluation;

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References

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Cited by:
  1. Barbara Rossi, 2013. "Exchange Rate Predictability," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1063-1119, December.
  2. Rossi, Barbara & Sekhposyan, Tatevik, 2014. "Evaluating predictive densities of US output growth and inflation in a large macroeconomic data set," International Journal of Forecasting, Elsevier, vol. 30(3), pages 662-682.
  3. Barbara Rossi & Tatevik Sehkposyan, 2013. "Evaluating Predictive Densities of U.S. Output Growth and Inflation in a Large Macroeconomic Data Set," Working Papers 689, Barcelona Graduate School of Economics.

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