Forecast Encompassing Tests and Probability Forecasts

Michael Peter Clements and David Harvey
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David Harvey: School of Economics, University of Nottingham

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We consider tests of forecast encompassing for probability forecasts, for both quadratic and logarithmic scoring rules. We propose test statistics for the null of forecast encompassing, present the limiting distributions of the test statistics, and investigate the impact of estimating the forecasting models’ parameters on these distributions. The small-sample performance of the various statistics is investigated, both in terms of small numbers of forecasts and model estimation sample sizes. Two empirical applications show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables, and for evaluating survey-based probability forecasts. Probability forecasts ; encompassing tests ; recession probabilities

JEL-codes: C12 C15 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:wrk:warwec:774

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