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Determining the MSE-optimal cross section to forecast

Ignacio Arbués

Journal of Econometrics, 2013, vol. 175, issue 2, 61-70

Abstract: In this paper, we address the question of which subset of time series should be selected among a given set in order to forecast another series. We evaluate the quality of the forecasts in terms of Mean Squared Error. We propose a family of criteria to estimate the optimal subset. Consistency results are proved, both in the weak (in probability) and strong (almost sure) sense. We present the results of a Monte Carlo experiment and a real data example in which the criteria are compared to some hypothesis tests such as the ones by Diebold and Mariano (1995), Clark and McCracken (2001, 2007) and Giacomini and White (2006).

Keywords: Forecasting; Model selection; VARMA models (search for similar items in EconPapers)
JEL-codes: C32 C52 C53 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.jeconom.2012.02.009

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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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