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Testing for unconditional predictive ability

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Abstract

This chapter provides an overview of pseudo-out-of-sample tests of unconditional predictive ability. We begin by providing an overview of the literature, including both empirical applications and theoretical contributions. We then delineate two distinct methodologies for conducting inference: one based on the analytics in West (1996) and the other based on those in Giacomini and White (2006). These two approaches are then carefully described in the context of pairwise tests of equal forecast accuracy between two models. We consider both non-nested and nested comparisons. Monte Carlo evidence provides some guidance as to when the two forms of analytics are most appropriate, in a nested model context.

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  • Todd E. Clark & Michael W. McCracken, 2010. "Testing for unconditional predictive ability," Working Papers 2010-031, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2010-031
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    Cited by:

    1. Clark, Todd & McCracken, Michael, 2013. "Advances in Forecast Evaluation," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1107-1201, Elsevier.
    2. Francesco Ravazzolo & Philip Rothman, 2013. "Oil and U.S. GDP: A Real-Time Out-of-Sample Examination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 449-463, March.
    3. Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2016. "Common Drifting Volatility in Large Bayesian VARs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(3), pages 375-390, July.
    4. Todd E. Clark & Taeyoung Doh, 2011. "A Bayesian evaluation of alternative models of trend inflation," Research Working Paper RWP 11-16, Federal Reserve Bank of Kansas City.
    5. Santiago Cajiao Raigosa & Luis Fernando Melo Velandia & Daniel Parra Amado, 2014. "Pronósticos para una economía menos volátil: el caso colombiano," Coyuntura Económica, Fedesarrollo, December.
    6. Jamali, Ibrahim & Yamani, Ehab, 2019. "Out-of-sample exchange rate predictability in emerging markets: Fundamentals versus technical analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 61(C), pages 241-263.

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