A Bunch of Models, a Bunch of Nulls and Inference About Predictive Ability

18 Pages Posted: 12 Apr 2012

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Date Written: April 12, 2012

Abstract

Inference about predictive ability is usually carried-out in the form of pairwise comparisons between two forecasting methods. Nevertheless, some interesting questions are concerned with families of models and not just with a couple of forecasting strategies. For instance: Are time-series models more accurate than economic models to predict inflation? In this familywise context it is not clear if the methods developed to analyze two models will be useful. We address this problem by presenting a simple methodology to test the null hypothesis of equal predictive ability between the forecasting methods belonging to both of the families under analysis. Our approach builds on the reality check presented by White. We illustrate our results comparing the ability of two families of models to predict inflation in Chile, the U.S., Sweden and Mexico.

Suggested Citation

Pincheira, Pablo M., A Bunch of Models, a Bunch of Nulls and Inference About Predictive Ability (April 12, 2012). Available at SSRN: https://ssrn.com/abstract=2039095 or http://dx.doi.org/10.2139/ssrn.2039095

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

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