- Aug. 22, 2019
- Aug. 21, 2019
- Aug. 21, 2019
Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2008 > Forecast Selection by Conditional Predictive Ability Tests: An Application to the Yen/Dollar Exchange Rate
An Application to the Yen/Dollar Exchange Rate
Click on wp08e01.pdf to download the full text.
In this paper, I propose a new method for forecast selection from a pool of many forecasts. My method has two features. The first is the use of the conditional predictive ability test proposed by Giacomini and White . Second, I construct a measure with two dimensions: "relative usefulness" and "signal predictability". The measure is designed to rank many forecasts in the order of ex-ante forecast accuracy. Therefore, the ranking can be useful not only for selection of a single forecast but also for forecast combinations. I apply the method to the monthly yen/dollar exchange rate. First, I evaluate the performance of base-line forecasting models including a forecast survey of Japanese companies. Second, I show empirically that my method of switching forecasting models reduces forecast errors compared with a single model.
I would like to thank Raffaella Giacomini, Mototsugu Shintani, Tomoyoshi Yabu and the staff of the Bank of Japan for their helpful comments. The opinions expressed here, as well as any remaining errors, belong to the author and should not be ascribed to the Bank of Japan or the Monetary Affairs Department.
Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (email@example.com) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.