Title of article :
The power of tests of predictive ability in the presence of structural breaks
Author/Authors :
Clark، نويسنده , , Todd E. and McCracken، نويسنده , , Michael W.، نويسنده ,
Issue Information :
دوفصلنامه با شماره پیاپی سال 2005
Abstract :
This paper presents analytical, Monte Carlo, and empirical evidence on the effects of structural breaks on tests for equal forecast accuracy and encompassing. We show that out-of-sample predictive content can be hard to find because out-of-sample tests are highly dependent on the timing of the predictive ability. Moreover, predictive content is harder to find with some tests than others: in power, F-type tests of equal forecast accuracy and encompassing often dominate t-type alternatives. Based on these results and evidence from an empirical application, we conclude that structural breaks under the alternative may explain why researchers often find evidence of in-sample, but not out-of-sample, predictive content.
Keywords :
Model selection , power , Forecast evaluation , Granger causality
Journal title :
Journal of Econometrics
Journal title :
Journal of Econometrics