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Evaluating Direct Multistep Forecasts

Author

Listed:
  • Todd Clark
  • Michael McCracken
Abstract
This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy and encompassing applied to direct, multistep predictions from nested regression models. We first derive asymptotic distributions; these nonstandard distributions depend on the parameters of the data-generating process. We then use Monte Carlo simulations to examine finite-sample size and power. Our asymptotic approximation yields good size and power properties for some, but not all, of the tests; a bootstrap works reasonably well for all tests. The paper concludes with a reexamination of the predictive content of capacity utilization for inflation.

Suggested Citation

  • Todd Clark & Michael McCracken, 2005. "Evaluating Direct Multistep Forecasts," Econometric Reviews, Taylor & Francis Journals, vol. 24(4), pages 369-404.
    • Handle: RePEc:taf:emetrv:v:24:y:2005:i:4:p:369-404
    DOI: 10.1080/07474930500405683
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    References listed on IDEAS

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    1. Massimiliano Marcellino, "undated". "Instability and non-linearity in the EMU," Working Papers 211, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Mark, Nelson & Sul, Donggyu, 2002. "Asymptotic Power Advantages of Long-Horizon Regressions," Working Papers 145, Department of Economics, The University of Auckland.
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