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Multivariate Forecast Evaluation And Rationality Testing

Listed author(s):
  • Komunjer, Ivana
  • OWYANG, MICHAEL

In this paper, we propose a new family of multivariate loss functions that can be used to test the rationality of vector forecasts without assuming independence across individual variables. When only one variable is of interest, the loss function reduces to the flexible asymmetric family recently proposed by Elliott, Komunjer, and Timmermann (2005). Following their methodology, we derive a GMM test for multivaariate forecast rationality that allows the forecast errors to be dependent, and takes into account forecast estimation ucertainty. We use our test to study the rationality of macroeconomic vector forecasts in the growth rate in nominal output, the CPI inflation rate, and a short-term interest rate.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt81w8m5sf.

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Date of creation: 01 Nov 2007
Handle: RePEc:cdl:ucsdec:qt81w8m5sf
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