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Understanding models' forecasting performance

  • Rossi, Barbara
  • Sekhposyan, Tatevik

We propose a new methodology to identify the sources of models' forecasting performance. The methodology decomposes the models' forecasting performance into asymptotically uncorrelated components that measure instabilities in the forecasting performance, predictive content, and over-fitting. The empirical application shows the usefulness of the new methodology for understanding the causes of the poor forecasting ability of economic models for exchange rate determination.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304407611000480
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 164 (2011)
Issue (Month): 1 (September)
Pages: 158-172

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Handle: RePEc:eee:econom:v:164:y:2011:i:1:p:158-172
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  18. 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.
  19. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46 National Bureau of Economic Research, Inc.
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