Long-run forecasting in multicointegrated systems
Tom Engsted (),
Niels Haldrup () and
Journal of Forecasting, 2004, vol. 23, issue 5, 315-335
We extend the analysis of Christoffersen and Diebold (1998) on long-run forecasting in cointegrated systems to multicointegrated systems. For the forecast evaluation we consider several loss functions, each of which has a particular interpretation in the context of stock-flow models where multicointegration typically occurs. A loss function based on a standard mean square forecast error (MSFE) criterion focuses on the forecast errors of the flow variables alone. Likewise, a loss function based on the triangular representation of cointegrated systems (suggested by Christoffersen and Diebold) considers forecast errors associated with changes in both stock (modelled through the cointegrating restrictions) and flow variables. We suggest a new loss function based on the triangular representation of multicointegrated systems which further penalizes deviations from the long-run relationship between the levels of stock and flow variables as well as changes in the flow variables. Among other things, we show that if one is concerned with all possible long-run relations between stock and flow variables, this new loss function entails high and increasing forecasting gains compared to both the standard MSFE criterion and Christoffersen and Diebold's criterion. This paper demonstrates the importance of carefully selecting loss functions in forecast evaluation of models involving stock and flow variables. Copyright © 2004 John Wiley & Sons, Ltd.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
http://hdl.handle.net/10.1002/for.925 Link to full text; subscription required (text/html)
Working Paper: Long-Run Forecasting in Multicointegrated Systems (2003)
Working Paper: Long-Run Forecasting in Multicointegrated Systems (2002)
Working Paper: Long-run forecasting in multicointegrated systems
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:23:y:2004:i:5:p:315-335
Access Statistics for this article
Journal of Forecasting is currently edited by Derek W. Bunn
More articles in Journal of Forecasting from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().