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Assume you have a competing model, say a model with trend and an ARMA(3,2) process in the detrended variable (which we are not estimating, just
Assume you have a competing model, say a model with trend and an ARMA(3,2) process in the detrended variable (which we are not estimating, just hypothetical). Assume also that you are interested in the accuracy of your 1-step ahead forecast. If your loss function is quadratic, how should you choose between the 2 models we are comparing? For your previously estimated model (the trend+AR(5) model), identify and report any relevant magnitude that you would need to use for such decision?
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