On bootstrapping tests of equal forecast accuracy for nested models
| dc.contributor.author | Doko Tchatoka, F. | |
| dc.contributor.author | Haque, Q. | |
| dc.date.issued | 2020 | |
| dc.description.abstract | The asymptotic distributions of the recursive out-of-sample forecast accuracy test statistics depend on stochastic integrals of Brownian motion when the models under comparison are nested. This often complicates their implementation in practice because the computation of their asymptotic critical values is costly. Hansen and Timmermann (2015, Econometrica) propose a Wald approximation of the commonly used recursive Fstatistic and provide a simple characterization of the exact density of its asymptotic distribution. However, this characterization holds only when the larger model has one extra predictor or the forecast errors are homoscedastic. No such closed-form characterization is readily available when the nesting involves more than one predictor and heteroskedasticity is present. We first show both the recursive F-test and its Wald approximation have poor finite-sample properties, especially when the forecast horizon is greater than one. We then propose a hybrid bootstrap method consisting of a block moving bootstrap (which is nonparametric) and a residual based bootstrap for both statistics, and establish its validity. Simulations show that our hybrid bootstrap has good finite-sample performance, even in multi-step ahead forecasts with heteroscedastic or autocorrelated errors, and more than one predictor. The bootstrap method is illustrated on forecasting core inflation and GDP growth. | |
| dc.description.statementofresponsibility | Firmin Doko Tchatoka, Qazi Haque | |
| dc.identifier.issn | 2206-0332 | |
| dc.identifier.orcid | Doko Tchatoka, F. [0000-0003-1876-0633] | |
| dc.identifier.orcid | Haque, Q. [0000-0003-0694-4443] | |
| dc.identifier.uri | https://hdl.handle.net/2440/138498 | |
| dc.language.iso | en | |
| dc.publisher | Centre for Applied Macroeconomic Analysis, Australian National University | |
| dc.relation.grant | http://purl.org/au-research/grants/arc/DP200101498 | |
| dc.relation.grant | http://purl.org/au-research/grants/arc/DP170100697 | |
| dc.relation.ispartofseries | CAMA Working Paper; 27/2020 | |
| dc.rights | Copyright status unknown | |
| dc.source.uri | https://cama.crawford.anu.edu.au/publication/cama-working-paper-series/16340/bootstrapping-tests-equal-forecast-accuracy-nested | |
| dc.subject | Out-of-sample forecasts | |
| dc.subject | HAC estimator | |
| dc.subject | Moving block bootstrap | |
| dc.subject | Bootstrap consistency | |
| dc.title | On bootstrapping tests of equal forecast accuracy for nested models | |
| dc.type | Working paper | |
| pubs.publication-status | Published |