Predicting relative forecasting performance : An empirical investigation

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Titel: Predicting relative forecasting performance : An empirical investigation
Författare: Granziera, Eleonora ; Sekhposyan, Tatevik
Institution: Bank of Finland
Serie: Bank of Finland Research Discussion Papers
Serienumber: 23/2018
Utgivningsår: 2018
Utgivningsdatum: 8.11.2018
Publicerad i: Also in International Journal of Forecasting 35 ; 2019
Sidor: 43
Subject (yso): ennusteet; taloudelliset mallit; inflaatio; teollisuustuotanto
Nyckelord: Yhdysvallat
JEL: C22; C52; C53
Andra nyckelord: Conditional Predictive Ability; Model Selection; Model Averaging; Inflation Forecasts; Output Growth Forecasts
Abstrakt: 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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