Multi-Horizon Forecast Comparison

Rogier Quaedvlieg

68 citations0/0 files storedJournal of Business and Economic Statistics

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Forecasting Techniques and Applications Monetary Policy and Economic Impact Statistical Methods and Inference

Abstract

We introduce tests for multi-horizon superior predictive ability (SPA). Rather than comparing forecasts of different models at multiple horizons individually, we propose to jointly consider all horizons of a forecast path. We define the concepts of uniform and average SPA. The former entails superior performance at each individual horizon, while the latter allows inferior performance at some horizons to be compensated by others. The article illustrates how the tests lead to more coherent conclusions, and how they are better able to differentiate between models than the single-horizon tests. We provide an extension of the previously introduced model confidence set to allow for multi-horizon comparison of more than two models. Simulations demonstrate appropriate size and high power. An illustration of the tests on a large set of macroeconomic variables demonstrates the empirical benefits of multi-horizon comparison.

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References

1994Comparing Predictive Accuracy 1991Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation 2006Approximately normal tests for equal predictive accuracy in nested models 2006Tests of Conditional Predictive Ability 1996Asymptotic Inference about Predictive Ability 2005A Test for Superior Predictive Ability 2013Handbook of Economic Forecasting 2005A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series

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