Testing for Differences in Path Forecast Accuracy: Forecast-Error Dynamics Matter
Andrew Martinez ()
No 1717, Working Papers (Old Series) from Federal Reserve Bank of Cleveland
Although the trajectory and path of future outcomes plays an important role in policy decisions, analyses of forecast accuracy typically focus on individual point forecasts. However, it is important to examine the path forecasts errors since they include the forecast dynamics. We use the link between path forecast evaluation methods and the joint predictive density to propose a test for differences in system path forecast accuracy. We also demonstrate how our test relates to and extends existing joint testing approaches. Simulations highlight both the advantages and disadvantages of path forecast accuracy tests in detecting a broad range of differences in forecast errors. We compare the Federal Reserve?s Greenbook point and path forecasts against four DSGE model forecasts. The results show that differences in forecast-error dynamics can play an important role in the assessment of forecast accuracy.
Keywords: log determinant; mean square error; GFESM; log score (search for similar items in EconPapers)
JEL-codes: C52 C53 C22 C12 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-11-02, Revised 2017-11-02
New Economics Papers: this item is included in nep-ecm and nep-for
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