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

Costantini, Mauro and Gunter, Ulrich and Kunst, Robert M. (October 2012) Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE-VAR System. IHS Economics Series 292

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Abstract or Table of Contents

Abstract: We study the benefits of forecast combinations based on forecast-encompassing tests relative to uniformly weighted forecast averages across rival models. For a realistic simulation design, we generate multivariate time-series samples of size 40 to 200 from a macroeconomic DSGE-VAR model. Constituent forecasts of the combinations are formed from 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 model. Results depend on the prediction horizon. While one-step prediction fails to support test-based combinations at all sample sizes, the test-based procedure clearly dominates at prediction horizons greater than two.;

Item Type: IHS Series
Keywords: 'Combining forecasts' 'Encompassing tests' 'Model selection' 'Time series' 'DSGE-VAR model'
Classification Codes (e.g. JEL): C15, C32, C53
Status: Published
Date Deposited: 26 Sep 2014 10:39
Last Modified: 22 Jul 2017 08:24
URI: http://irihs.ihs.ac.at/id/eprint/2169

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