Paper #1368

Title:

Conditional predictive density evaluation in the presence of instabilities

Authors:

Barbara Rossi and Tatevik Sekhposyan

Date:

February 2013

Abstract:

We propose new methods for evaluating predictive densities. The methods include Kolmogorov-Smirnov and Cramér-von Mises-type tests for the correct specification of predictive densities robust to dynamic mis-specification. The novelty is that the tests can detect mis-specification in the predictive densities even if it appears only over a fraction of the sample, due to the presence of instabilities. Our results indicate that our tests are well sized and have good power in detecting mis-specification in predictive densities, even when it is time-varying. An application to density forecasts of the Survey of Professional Forecasters demonstrates the usefulness of the proposed methodologies.

Keywords:

Predictive Density, Dynamic Mis-specification, Instability, Structural Change, Forecast Evaluation.

JEL codes:

C22, C52, C53

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Econometrics, 177 (2), 199-212, 2013

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