Matteo Mogliani, Florens Odendahl
arXiv 8 Dec 2024 · Econometrics · 1 citations (OpenAlex)
arXiv:2412.06092 · PDF · DOI · OpenAlex · Extracted main text
The popular choice of using a $direct$ forecasting scheme implies that the individual predictions do not contain information on cross-horizon dependence. However, this dependence is needed if the forecaster has to construct, based on $direct$ density forecasts, predictive objects that are functions of several horizons ($e.g.$ when constructing annual-average growth rates from quarter-on-quarter growth rates). To address this issue we propose to use copulas to combine the individual $h$-step-ahead predictive distributions into a joint predictive distribution. Our method is particularly appealing to practitioners for whom changing the $direct$ forecasting specification is too costly. In a Monte Carlo study, we demonstrate that our approach leads to a better approximation of the true density than an approach that ignores the potential dependence. We show the superior performance of our method in several empirical examples, where we construct (i) quarterly forecasts using month-on-month $direct$ forecasts, (ii) annual-average forecasts using monthly year-on-year $direct$ forecasts, and (iii) annual-average forecasts using quarter-on-quarter $direct$ forecasts.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Adrian, T., Boyarchenko, N., and Giannone, D (2019) Vulnerable growth | 1.000 | 8 | 3 | 100% |
| 2 | Giacomini, R. and White, H (2006) Tests of Conditional Predictive Ability | 0.950 | 7 | 3 | 86% |
| 3 | Patton, A. J (2006) Modelling asymmetric exchange rate dependence | 0.874 | 7 | 2 | 100% |
| 4 | McCracken, M. W. and Ng, S (2016) FRED-MD: A Monthly Database for Macroeconomic Research | 0.843 | 3 | 3 | 100% |
| 5 | Rossi, B. and Sekhposyan, T (2019) Alternative tests for correct specification of conditional predictive densities | 0.811 | 4 | 2 | 100% |
| 6 | Gneiting, T., Balabdaoui, F., and Raftery, A. E (2007) Probabilistic forecasts, calibration and sharpness | 0.644 | 2 | 2 | 100% |
| 7 | Mariano, R. S. and Murasawa, Y (2003) A new coincident index of business cycles based on monthly and quarterly series | 0.644 | 2 | 2 | 100% |
| 8 | Mitchell, J., Poon, A., and Zhu, D (2024) Constructing density forecasts from quantile regressions: Multimodality in macrofinancial dynamics | 0.644 | 2 | 2 | 100% |
| 9 | McCracken, M. W. and McGillicuddy, J. T (2019) An empirical investigation of direct and iterated multistep conditional forecasts | 0.585 | 3 | 1 | 100% |
| 10 | Azzalini, A. and Capitanio, A (2003) Distributions Generated by Perturbation of Symmetry with Emphasis on a Multivariate Skew t-Distribution | 0.511 | 2 | 1 | 100% |
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