Evaluating Multi-Step System Forecasts with Relatively Few Forecast-Error Observations

Mar 2016 | 784

Authors: David Hendry Andrew B. Martinez


This paper develops a new approach for evaluating multi-step system forecasts with relatively few forecast-error observations. It extends Clements and Hendry (1993a) using 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 against these methods and provides correct forecast rankings.

JEL Codes: C22, C32, C53

Keywords: Invariance, Forecast Evaluation, Forecast Error, Moment Matrices, MSFE, GFESM

View All Working Papers