The Use of Encompassing Tests for Forecast Combinations

Download or read book The Use of Encompassing Tests for Forecast Combinations written by Turgut Kisinbay and published by International Monetary Fund. This book was released on 2007-11 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper proposes an algorithm that uses forecast encompassing tests for combining forecasts. The algorithm excludes a forecast from the combination if it is encompassed by another forecast. To assess the usefulness of this approach, an extensive empirical analysis is undertaken using a U.S. macroecoomic data set. The results are encouraging as the algorithm forecasts outperform benchmark model forecasts, in a mean square error (MSE) sense, in a majority of cases.