The Use of Encompassing Tests for Forecast Combinations

Author/Editor:

Turgut Kisinbay

Publication Date:

November 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 07/264

Subject:

Frequency:

Annually

English

Publication Date:

November 1, 2007

ISBN/ISSN:

9781451868272/1018-5941

Stock No:

WPIEA2007264

Format:

Paper

Pages:

21

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