Estimation and Testing of Forecast Rationality with Many Moments

Tae Hwy Lee and Tao Wang ()
Additional contact information
Tao Wang: Department of Economics, University of Victoria, Canada

No 202307, Working Papers from University of California at Riverside, Department of Economics

Abstract: We in this paper utilize P-GMM (Cheng and Liao, 2015) moment selection procedure to select valid and relevant moments for estimating and testing forecast rationality under the flexible loss proposed by Elliott et al. (2005). We motivate the moment selection in a large dimensional setting, explain the fundamental mechanism of P-GMM moment selection procedure, and elucidate how to implement it in the context of forecast rationality by allowing the existence of potentially invalid moment conditions. A set of Monte Carlo simulations is conducted to examine the finite sample performance of P-GMM estimation in integrating the information available in instruments into both the estimation and testing, and a real data analysis using data from the Survey of Professional Forecasters issued by the Federal Reserve Bank of Philadelphia is presented to further illustrate the practical value of the suggested methodology. The results indicate that the P-GMM post-selection estimator of forecaster’s attitude is comparable to the oracle estimator by using the available information efficiently. The accompanying power of rationality and symmetry tests utilizing P-GMM estimation would be substantially increased through reducing the influence of uninformative instruments. When a forecast user estimates and tests for rationality of forecasts that have been produced by others such as Greenbook, P-GMM moment selection procedure can assist in achieving consistent and more efficient outcomes.

Keywords: Forecast rationality; Moment selection; P-GMM; Relevance; Validity. (search for similar items in EconPapers)
JEL-codes: C10 C36 C53 E17 (search for similar items in EconPapers)
Pages: 21 Pages
Date: 2023-09
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/202307.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: Estimation and Testing of Forecast Rationality with Many Moments (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202307

Access Statistics for this paper

More papers in Working Papers from University of California at Riverside, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kelvin Mac ().