1 CHAPTER 9 FORECASTING PRACTICE II: ASSESSMENT OF FORECASTS AND COMBINATION OF FORECASTS 9.1 Optimal Forecast González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Figure 9.1 The Forecasting Problem

2 Figure 9.2 Asymmetric Loss Function: Linex Function González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc Symmetric and Asymmetric Loss Functions

3 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Figure 9.3 Optimal Forecast Under Asymmetric Loss Function (Linex Function)

4 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Figure 9.4 Density Forecast of Quarterly Growth Rate of House Prices in 2009:Q2, Point Forecast Under Linex Function

González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. 5 Figure 9.5 Quarterly Growth Rate of House Price Index in California Testing the Optimality of the Forecast

6 Table 9.1 Three Models to Forecast Quarterly Growth Rate of House Prices in California González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc.

7 Table 9.2 Optimal Forecasts and Forecasts Errors Under Symmetric Loss Function (Root-MSE)

González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. 8 Table 9.3 Optimal Forecasts and Forecasts Errors Under Asymmetric Linex Loss (a=1)

González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. 9 Table 9.4 Optimality of the Forecast

10 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Table 9.5 Quadratic Loss Differential 9.2 Assessment of Forecasts

11 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Figure 9.6 Quadratic Loss Differential

12 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Table 9.6 Descriptive Evaluation of the Average Loss Table 9.7 Statistical Evaluation of the Average Loss Test of unconditional predictive ability

13 González-Rivera: Forecasting for Economics and Business, Copyright © 2013 Pearson Education, Inc. Table 9.8 Combination of Forecasts – Weights and MSEs 9.3 Combination of Forecasts