Forecasting MS-VAR Processes

Abstract

One major objective of time series analysis is the creation of suitable models for prediction. It is convenient to choose the optimal predictor ${\hat y_{t + h\left| t \right.}}$ in the sense of a minimizer of the mean squared prediction error (MSPE),

$${\hat y_{t + h\left| t \right.}}: = \arg \,\mathop {\min }\limits_{\hat y} {\rm E}\left[ {{{\left( {{y_{t + h}} - \hat y} \right)}^2}\left| {{\lambda _t}} \right.} \right].$$

(4.1)