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Advances in Forecast Evaluation

This paper surveys recent developments in the evaluation of point forecasts. Taking West’s (2006) survey as a starting point, we briefly cover the state of the litera- ture as of the time of West’s writing. We then focus on recent developments, including advancements in the evaluation of forecasts at the population level (based on true, un- known model coefficients), the evaluation of forecasts in the finite sample (based on estimated model coefficients), and the evaluation of conditional versus unconditional forecasts. We present original results in a few subject areas: the optimization of power in determining the split of a sample into in-sample and out-of-sample portions; whether the accuracy of inference in evaluation of multi-step forecasts can be improved with judicious choice of HAC estimator (it can); and the extension of West’s (1996) theory results for population-level, unconditional forecast evaluation to the case of conditional forecast evaluation.

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