The Use of Encompassing Tests for Forecast Combinations

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.
Publication date: November 2007
ISBN: 9781451868272
$18.00
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forecast combination , forecast encompassing , thick-modeling , forecasting , significance level , time series , significance levels , econometrics

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