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Multi-step estimation for forecasting

Clements, M. P. and Hendry, D. F. (1996) Multi-step estimation for forecasting. Oxford Bulletin of Economics and Statistics, 58 (4). pp. 657-684. ISSN 1468-0084

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To link to this item DOI: 10.1111/j.1468-0084.1996.mp58004005.x


We delineate conditions which favour multi-step, or dynamic, estimation for multi-step forecasting. An analytical example shows how dynamic estimation (DE) may accommodate incorrectly-specified models as the forecast lead alters, improving forecast performance for some misspecifications. However, in correctly-specified models, reducing finite-sample biases does not justify DE. In a Monte Carlo forecasting study for integrated processes, estimating a unit root in the presence of a neglected negative moving-average error may favour DE, though other solutions exist to that scenario. A second Monte Carlo study obtains the estimator biases and explains these using asymptotic approximations.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:72764
Publisher:Blackwell Publishing Ltd

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