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Equal Predictive Ability Tests Based on Panel Data with Applications to OECD and IMF Forecasts

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  • Oguzhan Akgun
  • Alain Pirotte
  • Giovanni Urga
  • Zhenlin Yang

Abstract

We propose two types of equal predictive ability (EPA) tests with panels to compare the predictions made by two forecasters. The first type, namely $S$-statistics, focuses on the overall EPA hypothesis which states that the EPA holds on average over all panel units and over time. The second, called $C$-statistics, focuses on the clustered EPA hypothesis where the EPA holds jointly for a fixed number of clusters of panel units. The asymptotic properties of the proposed tests are evaluated under weak and strong cross-sectional dependence. An extensive Monte Carlo simulation shows that the proposed tests have very good finite sample properties even with little information about the cross-sectional dependence in the data. The proposed framework is applied to compare the economic growth forecasts of the OECD and the IMF, and to evaluate the performance of the consumer price inflation forecasts of the IMF.

Suggested Citation

  • Oguzhan Akgun & Alain Pirotte & Giovanni Urga & Zhenlin Yang, 2020. "Equal Predictive Ability Tests Based on Panel Data with Applications to OECD and IMF Forecasts," Papers 2003.02803, arXiv.org, revised Feb 2023.
    • Handle: RePEc:arx:papers:2003.02803
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    2. Ryan Greenaway-McGrevy & Kade Sorensen, 2021. "A spatial model averaging approach to measuring house prices," Journal of Spatial Econometrics, Springer, vol. 2(1), pages 1-32, December.

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