Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE System

Costantini, Mauro and Gunter, Ulrich and Kunst, Robert M. (May 2010) Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE System. IHS Economics Series 251

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Abstract or Table of Contents

Abstract: We use data generated by a macroeconomic DSGE model to study the relative benefits of forecast combinations based on forecast-encompassing tests relative to simple uniformly weighted forecast averages across rival models. Assumed rival models are four linear autoregressive specifications, one of them a more sophisticated factor-augmented vector autoregression (FAVAR). The forecaster is assumed not to know the true data-generating DSGE model. The results critically depend on the prediction horizon. While one-step prediction hardly supports test-based combinations, the test-based procedure attains a clear lead at prediction horizons greater than two.;

Item Type: IHS Series
Keywords: 'Combining forecasts' 'Encompassing tests' 'Model selection' 'Time series' 'DSGE model'
Classification Codes (e.g. JEL): C15, C32, C53
Status: Published
Date Deposited: 26 Sep 2014 10:39
Last Modified: 21 Jul 2017 22:45
URI: http://irihs.ihs.ac.at/id/eprint/1986

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