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Conditional predictive density evaluation in the presence of instabilities
Rossi, Barbara; Sekhposyan, Tatevik
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We propose new methods for evaluating predictive densities. The methods includeKolmogorov-Smirnov and Cram?r-von Mises-type tests for the correct specification ofpredictive densities robust to dynamic mis-specification. The novelty is that the testscan detect mis-specification in the predictive densities even if it appears only overa fraction of the sample, due to the presence of instabilities. Our results indicatethat our tests are well sized and have good power in detecting mis-specification inpredictive densities, even when it is time-varying. An application to density forecastsof the Survey of Professional Forecasters demonstrates the usefulness of the proposedmethodologies.
Macroeconomics and International Economics
predictive density
dynamic mis-specification
structural change
forecast evaluation.
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