Todd Clark

Research Department
Federal Reserve Bank of Cleveland
PO Box 6387
Cleveland, OH44101
Tel: 816 881 2575

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

August 2006Approximately Normal Tests for Equal Predictive Accuracy in Nested Models
with Kenneth D. West: t0326
Forecast evaluation often compares a parsimonious null model to a larger model that nests the null model. Under the null that the parsimonious model generates the data, the larger model introduces noise into its forecasts by estimating parameters whose population values are zero. We observe that the mean squared prediction error (MSPE) from the parsimonious model is therefore expected to be smaller than that of the larger model. We describe how to adjust MSPEs to account for this noise. We propose applying standard methods (West (1996)) to test whether the adjusted mean squared error difference is zero. We refer to nonstandard limiting distributions derived in Clark and McCracken (2001, 2005a) to argue that use of standard normal critical values will yield actual sizes close to, but a...
January 2005Using Out-of-Sample Mean Squared Prediction Errors to Test the Martingale Difference
with Kenneth D. West: t0305
We consider using out-of-sample mean squared prediction errors (MSPEs) to evaluate the null that a given series follows a zero mean martingale difference against the alternative that it is linearly predictable. Under the null of no predictability, the population MSPE of the null "no change" model equals that of the linear alternative. We show analytically and via simulations that despite this equality, the alternative model's sample MSPE is expected to be greater than the null's. For rolling regression estimators of the alternative model's parameters, we propose and evaluate an asymptotically normal test that properly accounts for the upward shift of the sample MSPE of the alternative model. Our simulations indicate that our proposed procedure works well.
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us