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Forecast Bias and MSFE Encompassing

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  • Massimiliano Marcellino

Abstract

We show that the standard condition for MSFE encompassing is no longer valid when the forecasts to be compared are biased. We propose a simple modification of such a condition and of tests for its validity. The theoretical results are illustrated by an empirical example on inflation and deficit forecasts, key variables for the formulation of monetary and fiscal policy.

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  • Massimiliano Marcellino, 2000. "Forecast Bias and MSFE Encompassing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(4), pages 533-542, September.
    • Handle: RePEc:bla:obuest:v:62:y:2000:i:4:p:533-542
    DOI: 10.1111/1468-0084.00186
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    Cited by:

    1. Massimiliano Marcellino, 2008. "A linear benchmark for forecasting GDP growth and inflation?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(4), pages 305-340.
    2. Michael Artis & Anindya Banerjee & Massimiliano Marcellino, "undated". "Factor forecasts for the UK," Working Papers 203, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Kontogeorgos, Georgios & Lambrias, Kyriacos, 2019. "An analysis of the Eurosystem/ECB projections," Working Paper Series 2291, European Central Bank.

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