Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/178500 
Year of Publication: 
2018
Series/Report no.: 
Bundesbank Discussion Paper No. 07/2018
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
Forecasts are useless whenever the forecast error variance fails to be smaller than the unconditional variance of the target variable. This paper develops tests for the null hypothesis that forecasts become uninformative beyond some limiting forecast horizon h. Following Diebold and Mariano (DM, 1995) we propose a test based on the comparison of the mean-squared error of the forecast and the sample variance. We show that the resulting test does not possess a limiting normal distribution and suggest two simple modifications of the DM-type test with different limiting null distributions. Furthermore, a forecast encompassing test is developed that tends to better control the size of the test. In our empirical analysis, we apply our tests to macroeconomic forecasts from the survey of Consensus Economics. Our results suggest that forecasts of macroeconomic key variables are barely informative beyond 2-4 quarters ahead.
Subjects: 
Hypothesis Testing
Predictive Accuracy
Informativeness
JEL: 
C12
C32
C53
ISBN: 
978-3-95729-437-1
Document Type: 
Working Paper

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