Department of Economics and Business Economics

Forecasters’ utility and forecast coherence

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  • rp18_23

    Final published version, 1 MB, PDF-document

    Emilio Zanetti Chini, University of Pavia and CREATES, Italy
We introduce a new definition of probabilistic forecasts’ coherence based on the divergence between forecasters’ expected utility and their own models’ likelihood function. When the divergence is zero, this utility is said to be local. A new micro-founded forecasting environment, the “Scoring Structure”, where the forecast users interact with forecasters, allows econometricians to build a formal test for the null hypothesis of locality. The test behaves consistently with the requirements of the theoretical literature. The locality is fundamental to set dating algorithms for the assessment of the probability of recession in U.S. business cycle and central banks’ “fan” charts.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages37
StatePublished - 21 Sep 2018
SeriesCREATES Research Papers
Number2018-23

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