Type: Working Paper
Path forecast evaluation
Working Paper, CEPR Discussion Paper, 2008/7009
JORDÀ, Òscar, MARCELLINO, Massimiliano, Path forecast evaluation, CEPR Discussion Paper, 2008/7009 - https://hdl.handle.net/1814/42334
Retrieved from Cadmus, EUI Research Repository
A path forecast refers to the sequence of forecasts 1 to H periods into the future. A summary of the range of possible paths the predicted variable may follow for a given confidence level requires construction of simultaneous confidence regions that adjust for any covariance between the elements of the path forecast. This paper shows how to construct such regions with the joint predictive density and Scheffé's (1953) S-method. In addition, the joint predictive density can be used to construct simple statistics to evaluate the local internal consistency of a forecasting exercise of a system of variables. Monte Carlo simulations demonstrate that these simultaneous confidence regions provide approximately correct coverage in situations where traditional error bands, based on the collection of marginal predictive densities for each horizon, are vastly off mark. The paper showcases these methods with an application to the most recent monetary episode of interest rate hikes in the U.S. macroeconomy.
Cadmus permanent link: https://hdl.handle.net/1814/42334
Series/Number: CEPR Discussion Paper; 2008/7009
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