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Evaluating Direct Multistep Forecasts

Todd Clark and Michael McCracken ()

Econometric Reviews, 2005, vol. 24, issue 4, 369-404

Abstract: This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy and encompassing applied to direct, multistep predictions from nested regression models. We first derive asymptotic distributions; these nonstandard distributions depend on the parameters of the data-generating process. We then use Monte Carlo simulations to examine finite-sample size and power. Our asymptotic approximation yields good size and power properties for some, but not all, of the tests; a bootstrap works reasonably well for all tests. The paper concludes with a reexamination of the predictive content of capacity utilization for inflation.

Keywords: Causality; Long horizon; Prediction (search for similar items in EconPapers)
Date: 2005
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