Forecast comparisons in unstable environments

Raffaella Giacomini () and Barbara Rossi

Journal of Applied Econometrics, 2010, vol. 25, issue 4, 595-620

Abstract: We propose new methods for comparing the out-of-sample forecasting performance of two competing models in the presence of possible instabilities. The main idea is to develop a measure of the relative local forecasting performance for the two models, and to investigate its stability over time by means of statistical tests. We propose two tests (the Fluctuation test and the One-Time Reversal test) that analyze the evolution of the models' relative performance over historical samples. In contrast to previous approaches to forecast comparison, which are based on measures of global performance, we focus on the entire time path of the models' relative performance, which may contain useful information that is lost when looking for the model that forecasts best on average. We apply our tests to the analysis of the time variation in the out-of-sample forecasting performance of monetary models of exchange rate determination relative to the random walk. Copyright © 2010 John Wiley & Sons, Ltd.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (334)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.1177 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2010-v25.4/ Supporting data files and programs (text/html)

Related works:
Working Paper: Forecast Comparisons in Unstable Environments (2008)
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:jae:japmet:v:25:y:2010:i:4:p:595-620

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.1177

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().