out of sample test, ENC NEW

[suki1121]

hi,

does anyone know how to choose the critical value for ENC-NEW test?

I hv been reading the literature written by Clark and McCracken (2000) "Test of Equal Forecast Accuracy and Encompassing for Nested Models". but, i still hv no idea abt the table. there is k2 (no. of independent regressors?), and pi in the table. i dut know whts those 2 related?


In addition, the out of sample test forecast error, we base on the historical mean or we do the regression of y on alpha hat (given the regression
y(t+1)=alpha + beta x(t)+u(t) ), alpha hat is measured when we set beta =0.


Thank you so much!!! reli need ur help for my project!!!! :D :D