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Cointegration and Long-Horizon Forecasting

  • Christoffersen, Peter F
  • Diebold, Francis X

The authors consider the forecasting of cointegrated variables and they show that, at long horizons, nothing is lost by ignoring cointegration when forecasts are evaluated using standard multivariate forecast accuracy measures. In fact, simple univariate Box-Jenkins forecasts are just as accurate. The authors' results highlight a potentially important deficiency of standard forecast accuracy measures--they fail to value the maintenance of cointegrating relationships among variables--and the authors suggest alternatives that explicitly do so.

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Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 16 (1998)
Issue (Month): 4 (October)
Pages: 450-58

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Handle: RePEc:bes:jnlbes:v:16:y:1998:i:4:p:450-58
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  1. Peter F. Christoffersen & Francis X. Diebold, . "Optimal Prediction Under Asymmetric Loss," CARESS Working Papres 97-20, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  2. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  3. Lin, Jin-Lung & Tsay, Ruey S, 1996. "Co-integration Constraint and Forecasting: An Empirical Examination," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 519-38, Sept.-Oct.
  4. Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
  5. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  6. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  7. Clements, M.P. & Hendry, D., 1992. "On the Limitations of Comparing Mean Square Forecast Errors," Economics Series Working Papers 99138, University of Oxford, Department of Economics.
  8. Clements, M.P. & Hendry, D.F., 1992. "Forecasting in Cointegrated Systems," Economics Series Working Papers 99139, University of Oxford, Department of Economics.
  9. Christoffersen & Diebold, . "Further Results on Forecasting and Model Selection Under Asymmetric Loss," Home Pages _059, University of Pennsylvania.
  10. Hoffman, Dennis L & Rasche, Robert H, 1996. "Assessing Forecast Performance in a Cointegrated System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 495-517, Sept.-Oct.
  11. Granger, Clive W J, 1996. "Can We Improve the Perceived Quality of Economic Forecasts?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 455-73, Sept.-Oct.
  12. Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
  13. Wickens, Michael R., 1996. "Interpreting cointegrating vectors and common stochastic trends," Journal of Econometrics, Elsevier, vol. 74(2), pages 255-271, October.
  14. Eric Zivot, 1996. "The Power of Single Equation Tests for Cointegration when the Cointegrating Vector is Prespecified," Econometrics 9612001, EconWPA.
  15. Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October.
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