Predicting relative forecasting performance : An empirical investigation

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Nimeke: Predicting relative forecasting performance : An empirical investigation
Tekijä: Granziera, Eleonora ; Sekhposyan, Tatevik
Julkaisija: Bank of Finland
Sarjan nimi: Bank of Finland Research Discussion Papers
Sarjan numero: 23/2018
Julkaisuvuosi: 2018
Ilmestymispäivämäärä: 8.11.2018
Julkaisuhuomatus: Also in International Journal of Forecasting 35 ; 2019
Sivumäärä: 43
Asiasanat (yso): ennusteet; taloudelliset mallit; inflaatio; teollisuustuotanto
Hakusanat: Yhdysvallat
JEL: C22; C52; C53
Muut hakusanat: Conditional Predictive Ability; Model Selection; Model Averaging; Inflation Forecasts; Output Growth Forecasts
Tiivistelmä: The relative performance of forecasting models changes over time. This empirical observation raises two questions: is the relative performance itself predictable? If so, can it be exploited to improve forecast accuracy? We address these questions by evaluating the predictive ability of a wide range of economic variables for two key US macroeconomic aggregates, industrial production and inflation, relative to simple benchmarks. We find that business indicators, financial conditions, uncertainty as well as measures of past relative performance are generally useful for explaining the relative forecasting performance of the models. We further conduct a pseudo-real-time forecasting exercise, where we use the information about the conditional performance for model selection and model averaging. The newly proposed strategies deliver sizable improvements over competitive benchmark models and commonly used combination schemes. Gains are larger when model selection and averaging are based on financial conditions as well as past performance measured at the forecast origin date.


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