EVALUATING MULTI-STEP SYSTEM FORECASTS WITH RELATIVELY FEW FORECAST-ERROR OBSERVATIONS

International Journal of Forecasting, Volume 33, Issue 2, p. 359-372

 

David F. Hendry, Andrew B. Martinez

This paper develops a new approach for evaluating multi-step system forecasts with relatively few forecast-error observations. It extends the work of Clements and Hendry (1993) by using that of Abadir et al. (2014) to generate “design-free” estimates of the general matrix of the forecast-error second-moment when there are relatively few forecast-error observations. Simulations show that the usefulness of alternative methods deteriorates when their assumptions are violated. The new approach compares well with these methods and provides correct forecast rankings.

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International Journal of Forecasting