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Predictive Inference Under Model Misspecification with an Application to Assessing the Marginal Predictive Content of Money for Output

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Author Info

  • Norman R. Swanson

    ()
    (Rutgers University)

  • Nii Ayi Armah

    ()
    (Bank of Canada)

Abstract

In this chapter we discuss model selection and predictive accuracy tests in the context of parameter and model uncertainty under recursive and rolling estimation schemes. We begin by summarizing some recent theoretical findings, with particular emphasis on the construction of valid bootstrap procedures for calculating the impact of parameter estimation error. We then discuss the Corradi and Swanson (CS: 2002) test of (non)linear out-of-sample Granger causality. Thereafter, we carry out a series of Monte Carlo experiments examining the properties of the CS and a variety of other related predictive accuracy and model selection type tests. Finally, we present the results of an empirical investigation of the marginal predictive content of money for income, in the spirit of Stock and Watson (1989), Swanson (1998) and Amato and Swanson (2001).

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201103.

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Length: 20 pages
Date of creation: 14 May 2011
Date of revision:
Publication status: Published in Forecasting in the Presence of Structural Breaks and Model Uncertainty, eds. Mark Wohar, Emerald, Bingley, UK, pp. 195-230.
Handle: RePEc:rut:rutres:201103

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Keywords: block bootstrap; recursive estimation scheme; rolling estimation scheme; prediction; nonlinear causality;

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References

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  1. Allan Timmermann & M. Hashem Pesaran, 2003. "How Costly is it to Ignore Breaks when Forecasting the Direction of a Time Series?," CESifo Working Paper Series 875, CESifo Group Munich.
  2. 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.
  3. Corradi, Valentina & Swanson, Norman R., 2006. "Bootstrap conditional distribution tests in the presence of dynamic misspecification," Journal of Econometrics, Elsevier, vol. 133(2), pages 779-806, August.
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  23. Kilian, Lutz, 1999. "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 491-510, Sept.-Oct.
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Cited by:
  1. Anthony Garratt & Gary Koop & Emi Mise & Shaun Vahey, 2008. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2008/13, Reserve Bank of New Zealand.

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