Path Forecast Evaluation

48 Pages Posted: 18 Dec 2008

See all articles by Oscar Jorda

Oscar Jorda

Federal Reserve Banks - Federal Reserve Bank of San Francisco; University of California, Davis - Department of Economics

Massimiliano Giuseppe Marcellino

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

A path forecast refers to the sequence of forecasts 1 to H periods into the future. A summary of the range of possible paths the predicted variable may follow for a given confidence level requires construction of simultaneous confidence regions that adjust for any covariance between the elements of the path forecast. This paper shows how to construct such regions with the joint predictive density and Scheffé's (1953) S-method. In addition, the joint predictive density can be used to construct simple statistics to evaluate the local internal consistency of a forecasting exercise of a system of variables. Monte Carlo simulations demonstrate that these simultaneous confidence regions provide approximately correct coverage in situations where traditional error bands, based on the collection of marginal predictive densities for each horizon, are vastly off mark. The paper showcases these methods with an application to the most recent monetary episode of interest rate hikes in the U.S. macroeconomy.

Keywords: error bands, path forecast, simultaneous confidence region

JEL Classification: C32, C52, C53

Suggested Citation

Jorda, Oscar and Marcellino, Massimiliano, Path Forecast Evaluation (October 2008). CEPR Discussion Paper No. DP7009, Available at SSRN: https://ssrn.com/abstract=1311133

Oscar Jorda

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
4159742691 (Phone)

HOME PAGE: http://www.frbsf.org/economic-research/economists/oscar-jorda/

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-5549382 (Phone)

HOME PAGE: http://old.econ.ucdavis.edu/faculty/jorda/

Massimiliano Marcellino (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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