There are a large number of tests for instability or breaks in coefficients in regression models designed for different possible departures from the stable model. We make two contributions to this literature. First, we consider a large class of persistent breaking processes that lead to...

Empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational. We establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell...

This paper proposes a new method for combining forecasts based on complete subset regressions. For a given set of potential predictor variables we combine forecasts from all possible linear regression models that keep the number of predictors fixed. We explore how the choice of model complexity,...

We address the issue of using a set of covariates to categorize or predict a binary outcome. This is a common problem in many disciplines including economics. In the context of a prespecified utility (or cost) function we examine the construction of forecasts suggesting an extension of the...

In situations where a sequence of forecasts is observed, a common strategy is to examine "rationality" conditional on a given loss function. We examine this from a different perspective—supposing that we have a family of loss functions indexed by unknown shape parameters, then given the...

Many predictors employed in forecasting macroeconomic and finance variables display a great deal of persistence. Tests for determining the usefulness of these predictors are typically oversized, overstating their importance. Similarly, hypothesis tests on cointegrating vectors will typically be...

Consider inference about the pre and post break value of a scalar parameter in a time series model with a single break at an unknown date. Unless the break is large, treating the break date estimated by least squares as the true break date leads to substantially oversized tests and confidence...

Forecasts guide decisions in all areas of economics and finance and their value can only be understood in relation to, and in the context of, such decisions. We discuss the central role of the loss function in helping determine the forecaster's objectives. Decision theory provides a framework...