Understanding models’ forecasting performance |
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Authors: | Barbara Rossi Tatevik Sekhposyan |
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Affiliation: | a Department of Economics, Duke University, 213 Social Sciences, P.O. Box 90097, Durham, NC 27708, USAb International Economic Analysis Department, Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada |
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Abstract: | We propose a new methodology to identify the sources of models’ forecasting performance. The methodology decomposes the models’ forecasting performance into asymptotically uncorrelated components that measure instabilities in the forecasting performance, predictive content, and over-fitting. The empirical application shows the usefulness of the new methodology for understanding the causes of the poor forecasting ability of economic models for exchange rate determination. |
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Keywords: | C22 C52 C53 |
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