S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.16(3) (Fall 2003)
Relationship of Forecast Encompassing to Composite Forecasts with Simulations and an Application
- Liang, Kuoyuan; Ryu, Keunkwan
- Issue Date
- Seoul Journal of Economics, Vol.16 No.3, pp. 363-386
- This paper examines the role of forecast-encompassing principles in model-specification searches through the use of linear composite forecasts. Based on the results of the pairwise forecast-encompassing test, this paper outlines a conceptual framework to provide some useful insights on cross-model evaluations in econometrics and the selection of predictors in composite forecasts. Second, it offers three different ways of performing the encompassing test and compares their finite sample performance through a Monte Carlo simulation study. Test results guide researchers to choose component forecasts and thus to avoid blind pooling in the combining regression.