Optimality Tests for Multi-Horizon Forecasts

Carlos Capistrán ()

No 2007-14, Working Papers from Banco de México

Abstract: This paper develops and analyzes a series of tests to evaluate the optimality of forecasts when forecasts for more than one horizon are available. The tests are based on the property that the unconditional expected loss of optimal forecasts should not decrease with the forecast horizon (e.g., under quadratic loss the variance of optimal forecast errors should not decrease with the horizon). The tests complement existing methods of forecast evaluation, such as Mincer-Zarnowitz-type tests, by using an implication of optimality that directly concerns forecasts made at different horizons. The finite sample performance of the tests is analyzed and an illustration using the Survey of Professional Forecasters is provided.

JEL-codes: C12 C53 E27 (search for similar items in EconPapers)
Date: 2007-12
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Citations: View citations in EconPapers (3)

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