enc_new: Clark-McCracken ENC-NEW Encompassing Test

In forecastdom: (Un)Conditional Forecast Dominance

Clark-McCracken ENC-NEW Encompassing Test

Description

Tests whether the benchmark model encompasses the alternative model, using the ENC-NEW statistic of Clark and McCracken (2001). Under the null, the benchmark forecast encompasses the alternative (no additional information in the alternative).

Usage

enc_new(e1, e2)

Arguments

e1	Numeric vector of forecast errors from the benchmark model.
e2	Numeric vector of forecast errors from the alternative model.

Details

The ENC-NEW statistic is:

\text{ENC-NEW} = n \cdot \frac{\bar{c}}{\text{MSFE}_2}

where \bar{c} = n^{-1} \sum (e_{1,t}^2 - e_{2,t} e_{1,t}) and \text{MSFE}_2 = n^{-1} \sum e_{2,t}^2.

Critical values are non-standard and depend on the estimation setup. See Clark and McCracken (2001, Table 2) for asymptotic critical values.

Value

A list with class "enc_new" containing:

statistic	The ENC-NEW test statistic.
n	Number of observations.

References

Clark, T.E. and McCracken, M.W. (2001). Tests of Equal Forecast Accuracy and Encompassing for Nested Models. Journal of Econometrics, 105(1), 85-110.

Examples

set.seed(42)
e1 <- rnorm(100)
e2 <- rnorm(100, sd = 0.9)
enc_new(e1, e2)

forecastdom documentation built on Nov. 2, 2026, 1:10 a.m.