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The behavior of forecast errors from a nearly integrated AR(1) model as both sample size and forecast horizon become large

Kemp, GCR (1999) 'The behavior of forecast errors from a nearly integrated AR(1) model as both sample size and forecast horizon become large.' Econometric Theory, 15 (2). 238 - 256. ISSN 0266-4666

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Abstract

We develop asymptotic approximations to the distribution of forecast errors from an estimated AR(1) model with no drift when the true process is nearly I(1) and both the forecast horizon and the sample size are allowed to increase at the same rate. We find that the forecast errors are the sums of two components that are asymptotically independent. The first is asymptotically normal whereas the second is asymptotically nonnormal. This throws doubt on the suitability of a normal approximation to the forecast error distribution. We then perform a Monte Carlo study to quantify further the effects on the forecast errors of sampling variability in the parameter estimates as we allow both forecast horizon and sample size to increase.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 17 Jul 2012 12:15
Last Modified: 23 Jan 2019 01:15
URI: http://repository.essex.ac.uk/id/eprint/2877

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