Predictive Ability Of Business Cycle Indicators Under Test: A Case Study For The Euro Area Industrial Production
Source: University of Munich
In this paper the authors assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, they use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, they employ tests that account for specific problems typically encountered in forecast exercises. Specifically, they pay attention to nested model structures, they alleviate the problem of data snooping arising from multiple pairwise testing, and they analyze the structural stability in the relative forecast performance of one indicator compared to a benchmark model.