nested models

[sanjeev]

Is it possible to test for the forecasting performance of alternative nested models in RATS where the models are VAR models. The Diebold Mariano test is not applicable for nested models. There is a Clarke test but can it be used for alternative nested VAR models?

[IRJ]

The Clark and McCracken (2001, 2012) ENC-t, ENC-F, ENC-REG (and MSF tests) can be used for comparing the predictive ability of any two nested models. So yes, I believe you can use these tests to compare two VAR models. There is a RATS procedure that performs these tests (written by Dr. Clark) himself that you can download from here:

https://estima.com/forum/viewtopic.php? ... ld+mariano

I would suggest that you also read the discussion by Dr. Clark and Dr. Doan in the above thread (and the attached paper). I found them to be very useful.