We consider the fundamental issue of what makes a “good” probability forecast for a central bank operating within an inflation targeting framework. We provide two examples in which the candidate forecasts comfortably outperform those from benchmark specifications by conventional statistical...

The paper introduces the model confidence set (MCS) and applies it to the selection of forecasting models. An MCS is a set of models that is constructed so that it will contain the "best" forecasting model, given a level of confidence. Thus, an MCS is analogous to a confidence interval for a...

This paper applies the Model Confidence Set (MCS) procedure of Hansen, Lunde, and Nason (2003) to a set of volatility models. A MCS is analogous to confidence interval of a parameter in the sense that the former contains the best forecasting model with a certain probability. The key to the MCS...