When do financial markets help in predicting economic activity? With incomplete markets, the link between financial and real economy is statedependent and financial indicators may turn out to be useful particularly in forecasting "tail" macroeconomic events. We examine this conjecture by studying Bayesian predictive distributions for output growth and inflation in the US between 1983 and 2012, ...

This paper examines the asymptotic and …nite-sample properties of tests of equal forecast accuracy when the models being compared are overlapping in the sense of Vuong (1989). Two models are overlapping when the true model contains just a subset of variables common to the larger sets of variables included in the competing forecasting models. We consider an out-of-sample version of the two-step ...

One of the approaches to compare forecasting methods is to test whether the risk from a benchmark prediction is smaller than the others. The test can be embedded into a general problem of testing inequality constraints using a one-sided sup functional. Hansen (2005) showed that such tests su¤er from asymptotic bias. This paper generalizes this observation, and proposes a hybrid method to robust...

On 1 January 2007, Slovenia was the first new EU member state to enter the euro area. Since June 2004, the Slovenian tolar participated in the exchange rate mechanism ERM-II with a central parity of 239.64 against the euro. This parity was also the conversion rate upon euro area accession. Applying a macroeconometric model of Slovenia, this paper analyses the macroeconomic effects of different ...

This paper focusses on survey expectations and discusses their uses for testing and modeling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focusses on average expectations rather than individual expectations is advanced. Other mod...

Academics and practitioners have long recognized the importance of a firm’s industry membership in explaining its financial performance. Yet, contrary to conventional wisdom, recent research shows that industry-specific profitability forecasting models are not better than economy-wide models. This paper re-examines the incremental advantage of industry-specific models. We find considerable indu...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper proposes a new way of computing a coincident indic...

This paper develops bootstrap methods for testing whether, in a finite sample, competing out-of-sample forecasts from nested models are equally accurate. Most prior work on forecast tests for nested models has focused on a null hypothesis of equal accuracy in population — basically, whether coefficients on the extra variables in the larger, nesting model are zero. We instead use an asymptotic a...

Much research has demonstrated the existence of patterns in high-frequency equity returns, return volatility, bid-ask spreads and trading volume. In this paper, we employ a new test for detecting periodicities based on a signal coherence function. The technique is applied to the returns, bid-ask spreads, and trading volume of thirty stocks traded on the NYSE. We are able to confirm previous fin...

We find that covariance matrix forecasts for an international interest rate portfolio generated by a model that incorporates interest-rate level volatility effects perform best with respect to statistical loss functions. However, within a value-at-risk (VaR) framework, the relative performance of the covariance matrix forecasts depends greatly on the VaR distributional assumption. Simple foreca...