Adjusting for Information Content When Comparing Forecast Performance

Riksbank Research Paper Series No. 152

Sveriges Riksbank Working Paper Series No. 328

19 Pages Posted: 7 Dec 2016

See all articles by Michael Andersson

Michael Andersson

Finansinspektionen

Ted Aranki

European Central Bank (ECB)

André Reslow

Sveriges Riksbank - Monetary Policy Department; Uppsala University - Department of Economics

Date Written: August 2016

Abstract

Cross institutional forecast evaluations may be severely distorted by the fact that forecasts are made at different points in time, and thus with different amount of information. This paper proposes a method to account for these differences. The method computes the timing effect and the forecaster's ability simultaneously. Monte Carlo simulation demonstrate that evaluations that do not adjust for the differences in information content may be misleading. In addition, the method is applied on a real-world data set of 10 Swedish forecasters for the period 1999-2015. The results show that the ranking of the forecasters is affected by the proposed adjustment.

Keywords: Forecast error, Forecast comparison, Publication time, Evaluation, Error component model, Panel data

JEL Classification: C23, C53, E37

Suggested Citation

Andersson, Michael and Aranki, Ted and Reslow, André, Adjusting for Information Content When Comparing Forecast Performance (August 2016). Riksbank Research Paper Series No. 152, Sveriges Riksbank Working Paper Series No. 328, Available at SSRN: https://ssrn.com/abstract=2871917 or http://dx.doi.org/10.2139/ssrn.2871917

Michael Andersson

Finansinspektionen ( email )

Box 7821
Brunnsgatan 3
Stockholm
Sweden

Ted Aranki

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

André Reslow (Contact Author)

Sveriges Riksbank - Monetary Policy Department ( email )

SE-103 37 Stockholm
Sweden

Uppsala University - Department of Economics

Box 513
Uppsala, 751 20
Sweden

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