Combining Forecasts Based on Multiple Encompassing Tests in a Macroeconomic Core System

Costantini, Mauro and Kunst, Robert M. (September 2009) Combining Forecasts Based on Multiple Encompassing Tests in a Macroeconomic Core System. IHS Economics Series 243

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Abstract or Table of Contents

Abstract: We investigate whether and to what extent multiple encompassing tests may help determine weights for forecast averaging in a standard vector autoregressive setting. To this end we consider a new test-based procedure, which assigns non-zeroweights to candidate models that add information not covered by other models. The potential benefits of this procedure are explored in extensive Monte Carlo simulations using realistic designs that are adapted to U.K. and to French macroeconomic data. The real economic growth rates of these two countries serve as the target series to be predicted. Generally, we find that the test-based averaging of forecasts yields a performance that is comparable to a simple uniform weighting of individual models. In one of our role-model economies, test-based averaging achieves some advantages in small samples. In larger samples, pure prediction models outperform forecast averages.;

Item Type: IHS Series
Keywords: 'Combining forecasts' 'Encompassing tests' 'Model selection' 'Time series'
Classification Codes (e.g. JEL): C32, C53
Status: Published
Date Deposited: 26 Sep 2014 10:38
Last Modified: 21 Jul 2017 22:50
URI: http://irihs.ihs.ac.at/id/eprint/1944

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