#2008-037A "Combining Forecasts From Nested Models"
by Todd E. Clark, and Michael W. McCracken
October 2008

Motivated by the common finding that linear autoregressive models often forecast better than models that incorporate additional information, this paper presents analytical, Monte Carlo, and empirical evidence on the effectiveness of combining forecasts from nested models. In our analytics, the unrestricted model is true, but a subset of the coefficients are treated as being local-to-zero. This approach captures the practical reality that the predictive content of variables of interest is often low. We derive MSE-minimizing weights for combining the restricted and unrestricted forecasts. Monte Carlo and empirical analyses verify the practical effectiveness of our combination approach. More...

FORTHCOMING: Oxford Bulletin of Economics and Statistics

#2008-030A "Averaging Forecasts from VARs with Uncertain Instabilities"
by Todd E. Clark, and Michael W. McCracken
August 2008

Recent work suggests VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. More...

FORTHCOMING: Journal of Applied Econometrics

#2008-029A "Tests of Equal Predictive Ability with Real-Time Data"
by Todd E. Clark, and Michael W. McCracken
August 2008

This paper examines the asymptotic and finite-sample properties of tests of equal forecast accuracy applied to direct, multi–step predictions from both non-nested and nested linear regression models. More...

FORTHCOMING: Journal of Business and Economic Statistics

#2008-028A "Improving Forecast Accuracy by Combining Recursive and Rolling Forecasts"
by Todd E. Clark, and Michael W. McCracken
August 2008

This paper presents analytical, Monte Carlo, and empirical evidence on combining recursive and rolling forecasts when linear predictive models are subject to structural change. More...

FORTHCOMING: International Economic Review