Forecast-Error-Based Estimation of Forecast Uncertainty When the Horizon is Increased

27 Pages Posted: 21 Jun 2016

See all articles by Malte Knüppel

Malte Knüppel

Deutsche Bundesbank - Research Centre

Date Written: 2014

Abstract

Recently, several institutions have increased their forecast horizons, and many institutions rely on their past forecast errors to estimate measures of forecast uncertainty. This work addresses the question how the latter estimation can be accomplished if there are only very few errors available for the new forecast horizons. It extends upon the results of Knüppel (2014) in order to relax the condition on the data structure required for the SUR estimator to be independent from unknown quantities. It turns out that the SUR estimator of forecast uncertainty tends to deliver large e¢ ciency gains compared to the OLS estimator (i.e. the sample mean of the squared forecast errors) in the case of increased forecast horizons. The SUR estimator is applied to the forecast errors of the Bank of England and the FOMC.

Keywords: multi-step-ahead forecasts, forecast error variance, SUR

JEL Classification: C13, C32, C53

Suggested Citation

Knüppel, Malte, Forecast-Error-Based Estimation of Forecast Uncertainty When the Horizon is Increased (2014). Bundesbank Discussion Paper No. 40/2014, Available at SSRN: https://ssrn.com/abstract=2797017 or http://dx.doi.org/10.2139/ssrn.2797017

Malte Knüppel (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

HOME PAGE: http://sites.google.com/view/malteknueppel-research/home

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