Forecast Comparisons in Unstable Environments
نویسندگان
چکیده
We propose new methods for comparing the out-of-sample forecasting performance of two competing models in the presence of possible instabilities. The main idea is to develop a measure of the relative local forecasting performance for the two models, and to investigate its stability over time by means of statistical tests. We propose two tests (the Fluctuation test and the One-time Reversal test) that analyze the evolution of the models' relative performance over historical samples. In contrast to previous approaches to forecast comparison, which are based on measures of global performance, we focus on the entire time path of the models' relative performance, which may contain useful information that is lost when looking for the model that forecasts best on average. We apply our tests to the analysis of the time variation in the out-of-sample forecasting performance of monetary models of exchange rate determination relative to the random walk.
منابع مشابه
Demand Forecasting Behavior: System Neglect and Change Detection
This research analyzes how individuals make forecasts based on time series data, and tests an intervention designed to improve forecasting performance. Using data from a controlled laboratory experiment, we find that forecasting behavior systematically deviates from normative predictions: Forecasters over-react to errors in relatively stable environments, but under-react to errors in relatively...
متن کاملDay-ahead Price Forecasting of Electricity Markets by a New Hybrid Forecast Method
Energy price forecast is the key information for generating companies to prepare their bids in the electricity markets. However, this forecasting problem is complex due to nonlinear, non-stationary, and time variant behavior of electricity price time series. Accordingly, in this paper a new strategy is proposed for electricity price forecast. The forecast strategy includes Wavelet Transform (WT...
متن کاملForecast Optimality Tests in the Presence of Instabilities
This paper proposes forecast optimality tests that can be used in unstable environments. They include tests for forecast unbiasedness, e¢ ciency, encompassing, serial uncorrelation, and, in general, regression-based tests of forecasting ability. The proposed tests are applied to evaluate the rationality of the Federal Reserve Greenbook forecasts as well as a variety of survey-based private fore...
متن کاملAre Exchange Rates Really RandomWalks? Some Evidence Robust to Parameter Instability
Many authors have documented that it is challenging to explain exchange rate fluctuations with macroeconomic fundamentals: a random walk forecasts future exchange rates better than existing macroeconomic models. This paper applies newly developed tests for nested model that are robust to the presence of parameter instability. The empirical evidence shows that for some countries we can reject th...
متن کاملDistributed Forcing of Forecast and Assimilation Error Systems
Temporally distributed deterministic and stochastic excitation of the tangent linear forecast system governing forecast error growth and the tangent linear observer system governing assimilation error growth is examined. The method used is to determine the optimal set of distributed deterministic and stochastic forcings of the forecast and observer systems over a chosen time interval. Distribut...
متن کامل