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Finite-sample properties of tests for forecast equivalence

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Author Info

  • Todd E. Clark

Abstract

This paper uses Monte Carlo experiments to examine the small-sample properties of some commonly used tests of equal forecast accuracy. The study pays particular attention to test power, evaluated using both asymptotic and empirical critical values. In addition to evaluating different tests, this paper evaluates the performance of different methods of determining the bandwidth used in computing autocorrelation-consistent test statistics. The simulation results show that tests of equal forecast accuracy have somewhat inflated size and modest or even low power. Moreover, the performances of the different tests and the bandwidth selection criteria are broadly similar.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 96-03.

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Date of creation: 1996
Date of revision:
Handle: RePEc:fip:fedkrw:96-03

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Keywords: Forecasting;

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Cited by:
  1. Frédérick Demers & Annie De Champlain, 2005. "Forecasting Core Inflation in Canada: Should We Forecast the Aggregate or the Components?," Working Papers 05-44, Bank of Canada.
  2. Todd E. Clark & Michael W. McCracken, 2000. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Econometric Society World Congress 2000 Contributed Papers 0319, Econometric Society.
  3. Hendry, David F. & Hubrich, Kirstin, 2006. "Forecasting economic aggregates by disaggregates," Working Paper Series 0589, European Central Bank.
  4. repec:att:wimass:9710 is not listed on IDEAS
  5. Sydney Ludvigson & Martin Lettau, 1999. "Consumption, aggregate wealth and expected stock returns," Staff Reports 77, Federal Reserve Bank of New York.
  6. Jonas Dovern & Christina Ziegler, 2008. "Predicting Growth Rates and Recessions. Assessing U.S. Leading Indicators under Real-Time Condition," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 54(4), pages 293-318.
  7. Berger, Helge & Österholm, Pär, 2007. "Does Money Growth Granger-Cause Inflation in the Euro Area? Evidence from Out-of-Sample Forecasts Using Bayesian VARs," Working Paper Series 2007:30, Uppsala University, Department of Economics.
  8. Kenneth D. West & Michael W. McCracken, 1998. "Regression-Based Tests of Predictive Ability," NBER Technical Working Papers 0226, National Bureau of Economic Research, Inc.

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