Conditional predictive density evaluation in the presence of instabilities |
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Authors: | Barbara Rossi Tatevik Sekhposyan |
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Institution: | 1. ICREA-UPF, Barcelona GSE, and CREI. Carrer Ramon Trias Fargas, 25-27, Mercè Rodoreda bldg., 08005 Barcelona, Spain;2. Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada |
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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. |
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Keywords: | C22 C52 C53 |
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