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Testing for Relative Predictive Accuracy: A Critical Viewpoint

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  • Kunst, Robert M.

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

Abstract

Tests for relative predictive accuracy have become a widespread addendum to forecast comparisons. Many empirical research reports conclude that the difference between the entertained forecasting models is 'insignificant'. This paper collects arguments that cast doubt on the usefulness of relative predictive accuracy tests. The main point is not that test power is too low but that their application is conceptually mistaken. The features are highlighted by means of some Monte Carlo experiments for simple time-series decision problems.

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File URL: http://www.ihs.ac.at/publications/eco/es-130.pdf
File Function: First version, 2003
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 130.

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Length: 45 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:ihs:ihsesp:130

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Related research

Keywords: Information criteria; Forecasting; Hypothesis testing;

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References

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  1. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  2. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
  3. Robert Kunst, 1997. "Augmented ARCH models for financial time series: stability conditions and empirical evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 575-586.
  4. Tashman, Leonard J., 2000. "Out-of-sample tests of forecasting accuracy: an analysis and review," International Journal of Forecasting, Elsevier, vol. 16(4), pages 437-450.
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Citations

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Cited by:
  1. Mariola Pilatowska, 2011. "Information and Prediction Criteria in Selecting the Forecasting Model," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 11, pages 21-40.
  2. Andreas, Brunhart, 2011. "Stock market’s reactions to revelation of tax evasion: an empirical assessment," MPRA Paper 42047, University Library of Munich, Germany, revised Sep 2012.
  3. Mésonnier, J-S., 2006. "The Reliability of Macroeconomic Forecasts based on Real Interest Rate Gap Estimates in Real Time: an Assessment for the Euro Area," Working papers 157, Banque de France.
  4. Jean-Stéphane MESONNIER, 2007. "The predictive content of the real interest rate gap for macroeconomic variables in the euro area," Money Macro and Finance (MMF) Research Group Conference 2006 102, Money Macro and Finance Research Group.
  5. Rumler, Fabio & Scharler, Johann & Moser, Gabriel, 2004. "Forecasting Austrian Inflation," Working Papers 91, Oesterreichische Nationalbank (Austrian Central Bank).
  6. Jesús Crespo Cuaresma & Ernest Gnan & Doris Ritzberger-Grünwald, 2005. "The Term Structure as a Predictor of Real Activity and Inflation in the Euro Area: A Reassessment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 318-342, July.
  7. Moura, Marcelo L. , & Lima, Adauto R. S. & Mendonça, Rodrigo M., 2008. "Exchange Rate and Fundamentals: The Case of Brazil," Insper Working Papers wpe_114, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  8. Silgoner, Maria Antoinette, 2005. "An Overview of European Economic Indicators: Great Variety of Data on the Euro Area, Need for More Extensive Coverage of the New EU Member States," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 66–89.
  9. Cuaresma, Jesus Crespo & Breitenfellner, Andreas, 2008. "Crude Oil Prices and the USD/EUR Exchange Rate," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.
  10. Moura, Marcelo, 2008. "Testing the Taylor Model Predictability for Exchange Rates in Latin America," Insper Working Papers wpe_119, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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