Evaluating multi-step system forecasts with relatively few forecast-error observations

Apr 2017

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

DOI: https://doi.org/10.1016/j.ijforecast.2016.08.007

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.

Department Author

David Hendry


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