@techreport{Engsted2003Long,
abstract = {We extend the analysis of Christoffersen and Diebold (1998) on long-run forecasting in cointegrated
systems to multicointegrated systems. For the forecast evaluation we consider several loss functions,
each of which has a particular interpretation in the context of stock-flow models where multicointegration
typically occurs. A loss function based on a standard mean square forecast error (MSFE)
criterion focuses on the forecast errors of the flow variables alone. Likewise, a loss function based
on the triangular representation of cointegrated systems (suggested by Christoffersen and Diebold)
considers forecast errors associated with changes in both stock (modelled through the cointegrating
restrictions) and flow variables. We suggest a new loss function which is based on the triangular
representation of multicointegrated systems which further penalizes deviations from the long-run relationship
between the levels of stock and flow variables as well as changes in the flow variables. Among
other things, we show that if one is concerned with all possible long-run relations between stock and
flow variables, this new loss function entails high and increasing forecasting gains compared to both
the standard MSFE criterion and Christoffersen and Diebold?s criterion. The paper demonstrates the
importance of carefully selecting loss functions in forecast evaluation of models involving stock and
flow variables.},
address = {Berlin},
author = {Tom Engsted and Boriss Siliverstovs and Niels Haldrup},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {C32; C53; 330; Multicointegration; Forecasting; Loss function; VAR models; Kointegration; Multivariate Analyse; Prognose; VAR-Modell; Theorie},
language = {eng},
number = {381},
publisher = {Deutsches Institut f\"{u}r Wirtschaftsforschung (DIW)},
title = {Long-run forecasting in multicointegrated systems},
type = {DIW-Diskussionspapiere},
url = {http://hdl.handle.net/10419/18137},
year = {2003}
}
