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Title:Forecast Evaluation of Small Nested Model Sets PDF Logo
Authors:Hubrich, Kirstin
West, Kenneth
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Macroeconomic Modeling and Forecasting Performance D11-V3
Abstract:We propose two new procedures for comparing the mean squared prediction error (MSPE) of a benchmark model to the MSPEs of a small set of alternative models that nest the benchmark. Our procedures compare the benchmark to all the alternative models simultaneously rather than sequentially, and do not require reestimation of models as part of a bootstrap procedure. Both procedures adjust MSPE differences in accordance with Clark and West (2007); one procedure then examines the maximum tstatistic, the other computes a chi-squared statistic. Our simulations examine the proposed procedures and two existing procedures that do not adjust the MSPE differences: a chi-squared statistic, and White's (2000) reality check. In these simulations, the two statistics that adjust MSPE differences have most accurate size, and the procedure that looks at the maximum t-statistic has best power. We illustrate our procedures by comparing forecasts of different models for U.S. inflation.
Subjects:Out-of-sample
prediction
testing
multiple model comparisons
inflation forecasting
JEL:C53
C52
E31
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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