Comparing predictive ability in presence of instability over a very short time, with F. Iacone and L. Rossini

I share the preliminary version of the paper Comparing predictive ability in presence of instability over a very short time, co-authored with my Ph.D. advisors Fabrizio Iacone and Luca Rossini. The working paper is available here. Abstract We consider forecast comparison in the presence of instability when this affects only a short period of time. We demonstrate that global tests do not perform well in this case, as they were not designed to capture very short-lived instabilities, and their power vanishes altogether when the magnitude of the shock is very large.