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Multivariate Forecast Evaluation And Rationality Testing

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  • Komunjer, Ivana
  • OWYANG, MICHAEL

Abstract

In this paper, we propose a new family of multivariate loss functions that can be used to test the rationality of vector forecasts without assuming independence across individual variables. When only one variable is of interest, the loss function reduces to the flexible asymmetric family recently proposed by Elliott, Komunjer, and Timmermann (2005). Following their methodology, we derive a GMM test for multivaariate forecast rationality that allows the forecast errors to be dependent, and takes into account forecast estimation ucertainty. We use our test to study the rationality of macroeconomic vector forecasts in the growth rate in nominal output, the CPI inflation rate, and a short-term interest rate.

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Bibliographic Info

Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt81w8m5sf.

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Date of creation: 01 Nov 2007
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Handle: RePEc:cdl:ucsdec:qt81w8m5sf

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Keywords: multivariate forecast rationality; multivariate loss; asymmetries; Fed Transparency;

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Cited by:
  1. Ulu, Yasemin, 2013. "Multivariate test for forecast rationality under asymmetric loss functions: Recent evidence from MMS survey of inflation–output forecasts," Economics Letters, Elsevier, vol. 119(2), pages 168-171.
  2. Wang, Yiyao & Lee, Tae-Hwy, 2014. "Asymmetric loss in the Greenbook and the Survey of Professional Forecasters," International Journal of Forecasting, Elsevier, vol. 30(2), pages 235-245.
  3. Tara M. Sinclair & Edward N. Gamber & H.O. Stekler & Elizabeth Reid, 2008. "Jointly Evaluating the Federal Reserve’s Forecasts of GDP Growth and Inflation," Working Papers 2008-002, The George Washington University, Department of Economics, Research Program on Forecasting, revised Mar 2011.
  4. Alp, Tansel & Demetrescu, Matei, 2010. "Joint forecasts of Dow Jones stocks under general multivariate loss function," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2360-2371, November.

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