Forecaster’s utility and forecasts coherence

Emilio Zanetti Chini ()

No 145, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: I provide general frequentist framework to elicit the forecaster’s expected utility based on a Lagrange Multiplier-type test for the null of locality of the scoring rules associated to the probabilistic forecast. These are assumed to be observed transition variables in a nonlinear autoregressive model to ease the statistical inference. A simulation study reveals that the test behaves consistently with the requirements of the theoretical literature. The locality of the scoring rule is fundamental to set dating algorithms to measure and forecast probability of recession in US business cycle. An investigation of Bank of Norway’s forecasts on output growth leads us to conclude that forecasts are often suboptimal with respect to some simplistic benchmark if forecaster’s reward is not properly evaluated.

Keywords: Business Cycle; Evaluation; Locality Testing; Nonlinear Time Series; Predictive Density; Scoring Rules; Scoring Structures. (search for similar items in EconPapers)
JEL-codes: C12 C22 C44 C53 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-01
New Economics Papers: this item is included in nep-ecm and nep-for
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http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0145.pdf (application/pdf)

Related works:
Working Paper: Forecaster’s utility and forecasts coherence (2018)
Working Paper: Forecasters’ utility and forecast coherence (2018)
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