Further Results on MSFE Encompassing
We show that the standard condition for MSFE encompassing is no longer valid when the forecasts to be compared are biased.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 relationship between these tests, pooling regressions and tests for non-nested hypotheses is also analysed, together with their multivariate versions. The teoretical results are illustrated by an empirical example on inflation and deficit forecasts, key variables for the formulation of monetary and fiscal policy.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.igier.unibocconi.it/
|Order Information:|| Web: http://www.igier.unibocconi.it/en/papers/index.htm Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-78, May.
- Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
- Neil R. Ericsson, 1991.
"Parameter constancy, mean square forecast errors, and measuring forecast performance: an exposition, extensions, and illustration,"
International Finance Discussion Papers
412, Board of Governors of the Federal Reserve System (U.S.).
- Ericsson, Neil R., 1992. "Parameter constancy, mean square forecast errors, and measuring forecast performance: An exposition, extensions, and illustration," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 465-495, August.
- Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Pesaran, M H, 1974. "On the General Problem of Model Selection," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 153-71, April.
- Wallis, Kenneth F, 1989. "Macroeconomic Forecasting: A Survey," Economic Journal, Royal Economic Society, vol. 99(394), pages 28-61, March.
- James G. MacKinnon, 1983. "Model Specification Tests Against Non-Nested Alternatives," Working Papers 573, Queen's University, Department of Economics.
- Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 475-94, Sept.-Oct.
- Ray C. Fair & Robert J. Shiller, 1988.
"The Informational Content of Ex Ante Forecasts,"
NBER Working Papers
2503, National Bureau of Economic Research, Inc.
- Pesaran, M H & Deaton, Angus S, 1978. "Testing Non-Nested Nonlinear Regression Models," Econometrica, Econometric Society, vol. 46(3), pages 677-94, May.
- Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1989.
- David Laster & Paul Bennett & In Sun Geoum, 1997. "Rational bias in macroeconomic forecasts," Staff Reports 21, Federal Reserve Bank of New York.
- 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.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Francis X. Diebold, 1989.
"Forecast combination and encompassing: reconciling two divergent literatures,"
Finance and Economics Discussion Series
80, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X., 1989. "Forecast combination and encompassing: Reconciling two divergent literatures," International Journal of Forecasting, Elsevier, vol. 5(4), pages 589-592.
- Ericsson, Neil R & Marquez, Jaime, 1993. "Encompassing the Forecasts of U.S. Trade Balance Models," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 19-31, February.
- Hansen, Bruce E., 1992.
"Testing for parameter instability in linear models,"
Journal of Policy Modeling,
Elsevier, vol. 14(4), pages 517-533, August.
- Tom Doan, . "STABTEST: RATS procedure to perform Hansen's stability test for OLS," Statistical Software Components RTS00199, Boston College Department of Economics.
- Clements, Michael P. & Hendry, David F., 2006. "Forecasting with Breaks," Handbook of Economic Forecasting, Elsevier.
- Fair, Ray C & Shiller, Robert J, 1990. "Comparing Information in Forecasts from Econometric Models," American Economic Review, American Economic Association, vol. 80(3), pages 375-89, June.
- Russell Davidson & James G. MacKinnon, 1980.
"Several Tests for Model Specification in the Presence of Alternative Hypotheses,"
378, Queen's University, Department of Economics.
- Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
- Clive W.J. Granger, 1999. "Outline of forecast theory using generalized cost functions," Spanish Economic Review, Springer, vol. 1(2), pages 161-173.
When requesting a correction, please mention this item's handle: RePEc:igi:igierp:143. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.