Forecast combinations in a DSGE-VAR lab

Costantini, Mauro; Gunter, Ulrich and Kunst, Robert M.ORCID: (December 2014) Forecast combinations in a DSGE-VAR lab. Former Series > Working Paper Series > IHS Economics Series 309, 57 p.


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We explore the benefits of forecast combinations based on forecast-encompassing tests compared to simple averages and to Bates-Granger combinations. We also consider a new combination method that fuses test-based and Bates-Granger weighting. For a realistic simulation design, we generate multivariate time-series samples from a macroeconomic DSGE-VAR model. Results generally support Bates-Granger over uniform weighting, whereas benefits of test-based weights depend on the sample size and on the prediction horizon. In a corresponding application to real-world data, simple averaging performs best. Uniform averages may be the weighting scheme that is most robust to empirically observed irregularities.

Item Type: IHS Series
Keywords: Combining forecasts, encompassing tests, model selection, time series, DSGE-VAR model
Date Deposited: 03 Feb 2015 08:17
Last Modified: 26 May 2024 06:02

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