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Encompassing the Forecasts of U.S. Trade Balance Models

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  • Ericsson, Neil R
  • Marquez, Jaime

Abstract

Yock 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 Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 75 (1993)
Issue (Month): 1 (February)
Pages: 19-31

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Handle: RePEc:tpr:restat:v:75:y:1993:i:1:p:19-31

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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Cited by:
  1. Antonis Michis, 2012. "Monitoring Forecasting Combinations with Semiparametric Regression Models," Working Papers, Central Bank of Cyprus 2012-02, Central Bank of Cyprus.
  2. Gibson, Heather D. & Lazaretou, Sophia, 2001. "Leading inflation indicators for Greece," Economic Modelling, Elsevier, Elsevier, vol. 18(3), pages 325-348, August.
  3. Neil R. Ericsson, 2008. "The Fragility of Sensitivity Analysis: An Encompassing Perspective," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 70(s1), pages 895-914, December.
  4. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 838, Board of Governors of the Federal Reserve System (U.S.).
  5. Neil R. Ericsson, 2001. "Forecast uncertainty in economic modeling," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 697, Board of Governors of the Federal Reserve System (U.S.).
  6. Kenneth D. West, 2000. "Encompassing Tests When No Model Is Encompassing," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0256, National Bureau of Economic Research, Inc.
  7. David Hendry & Michael Clements, 2001. "Pooling of Forecasts," Economics Series Working Papers, University of Oxford, Department of Economics 2002-W09, University of Oxford, Department of Economics.
  8. Massimiliano Marcellino, . "Further Results on MSFE Encompassing," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 143, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Neil R. Ericsson, 2000. "Predictable uncertainty in economic forecasting," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 695, Board of Governors of the Federal Reserve System (U.S.).

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