ARCH Models for Multi-period Forecast Uncertainty: A Reality Check Using a Panel of Density Forecasts

Kajal Lahiri and Fushang Liu

A chapter in Econometric Analysis of Financial and Economic Time Series, 2006, pp 321-363 from Emerald Group Publishing Limited

Abstract: We develop a theoretical model to compare forecast uncertainty estimated from time-series models to those available from survey density forecasts. The sum of the average variance of individual densities and the disagreement is shown to approximate the predictive uncertainty from well-specified time-series models when the variance of the aggregate shocks is relatively small compared to that of the idiosyncratic shocks. Due to grouping error problems and compositional heterogeneity in the panel, individual densities are used to estimate aggregate forecast uncertainty. During periods of regime change and structural break, ARCH estimates tend to diverge from survey measures.

Date: 2006
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Working Paper: ARCH models for multi-period forecast uncertainty-a reality check using a panel of density forecasts (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(05)20012-9

DOI: 10.1016/S0731-9053(05)20012-9

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