Modelling methodology and forecast failure
We analyse by simulation the impact of model-selection strategies (sometimes called pre-testing) on forecast performance in both constant-and non-constant-parameter processes. Restricted, unrestricted and selected models are compared when either of the first two might generate the data. We find little evidence that strategies such as general-to-specific induce significant over-fitting, or thereby cause forecast-failure rejection rates to greatly exceed nominal sizes. Parameter non-constancies put a premium on correct specification, but in general, model-selection effects appear to be relatively small, and progressive research is able to detect the mis-specifications. Copyright Royal Economic Society, 2002
Year of publication: |
2002
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Authors: | Clements, Michael P. ; Hendry, David F. |
Published in: |
Econometrics Journal. - Royal Economic Society - RES. - Vol. 5.2002, 2, p. 319-344
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Publisher: |
Royal Economic Society - RES |
Saved in:
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