Chapter

Generalized Forecast Errors, a Change of Measure, and Forecast Optimality*

Andrew J. Patton and Allan Timmermann

in Volatility and Time Series Econometrics

Published in print March 2010 | ISBN: 9780199549498
Published online May 2010 | e-ISBN: 9780191720567 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199549498.003.0010

Series: Advanced Texts in Econometrics

 Generalized Forecast Errors, a Change of Measure, and Forecast Optimality*

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This chapter discusses properties of optimal forecasts under general loss functions, and proposes an interesting change of measure under which minimum mean square error forecast properties can be recovered. The outline of this chapter is as follows. Section 2 establishes properties of optimal forecasts under general known loss functions. Section 3 contains the change of measure result, and Section 4 presents empirical illustrations of the results. Section 5 concludes.

Keywords: forecasts; general loss functions; inflation; optimal forecasts

Chapter.  9563 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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