Multiperiod-Ahead Predictive Densities and Model Comparison in Dynamic Models
This study proposes a new model comparison method which uses multiperiod-ahead predictive densities. Use of predictive densities allows us to incorporate the uncertainties associated with point forecasts in comparing the forecasting performances of various models. In the special case where one-period-ahead predictive densities are used, the method is equivalent to the Bayesian posterior odds. This new model-comparison method is contrasted to other measures of forecasting performance, such as the mean squared error, which don’t consider the uncertainties associated with point forecasts. To evaluate the multiperiod-ahead predictive densities in dynamic models, this study uses simulation methods.
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