Arbeitspapier
A near optimal test for structural breaks when forecasting under square error loss
We propose a near optimal test for structural breaks of unknown timing when the purpose of the analysis is to obtain accurate forecasts under square error loss. A bias-variance trade-off exists under square forecast error loss, which implies that small structural breaks should be ignored. We study critical break sizes, assess the relevance of the break location, and provide a test to determine whether modeling a break will improve forecast accuracy. Asymptotic critical values and near optimality properties are established allowing for a break under the null, where the critical break size varies with the break location. The results are extended to a class of shrinkage forecasts with our test statistic as shrinkage constant. Empirical results on a large number of macroeconomic time series show that structural breaks that are relevant for forecasting occur much less frequently than indicated by existing tests.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 17-039/III
- Klassifikation
-
Wirtschaft
Hypothesis Testing: General
Forecasting Models; Simulation Methods
- Thema
-
structural break test
forecasting
squared error loss
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Boot, Tom
Pick, Andreas
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2017
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Boot, Tom
- Pick, Andreas
- Tinbergen Institute
Entstanden
- 2017
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