Encompassing the Forecasts of U.S. Trade Balance Models
AbstractYock Y. Chong and David F. Hendry (1986) propose the concept of forecast encompassing--the lack of additional information in another model's forecasts. The corresponding test statistic is based on the regression of one model's forecast errors on the other model's forecasts. This paper generalizes Chong and Hendry's statistic to include sets of dynamic nonlinear models with uncertain estimated coefficients generating multistep forecasts with possibly systematic biases. Using stochastic simulation, the generalized statistic is applied to forecasts over 1985Q1-1987Q4 from six models of the U.S. merchandise trade balance, revealing misspecification in all models. Copyright 1993 by MIT Press.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics & Statistics.
Volume (Year): 75 (1993)
Issue (Month): 1 (February)
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- Neil R. Ericsson, 2008.
"The Fragility of Sensitivity Analysis: An Encompassing Perspective,"
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- Antonis Michis, 2012. "Monitoring Forecasting Combinations with Semiparametric Regression Models," Working Papers 2012-02, Central Bank of Cyprus.
- Gibson, Heather D. & Lazaretou, Sophia, 2001. "Leading inflation indicators for Greece," Economic Modelling, Elsevier, vol. 18(3), pages 325-348, August.
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