Testing for State-Dependent Predictive Ability

Sebastian Fossati

No 2017-9, Working Papers from University of Alberta, Department of Economics

Abstract: This paper proposes a new test for comparing the out-of sample forecasting performance of two competing models for situations in which the predictive content may be state-dependent (for example, expansion and recession states or low and high volatility states). To apply this test the econometrician is not required to observe when the underlying states shift. The test is simple to implement and accommodates several different cases of interest. An out-of-sample forecasting exercise for US output growth using real-time data illustrates the improvement of this test over previous approaches to perform forecast comparison.

Keywords: Forecast Evaluation; Testing; Regime Switching; Structural Change (search for similar items in EconPapers)
JEL-codes: C22 C53 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-09-06
New Economics Papers: this item is included in nep-ecm and nep-for
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2017_009

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