Forecast Combination and the Bank of England's Suite of Statistical Forecasting Models

49 Pages Posted: 22 Aug 2007

See all articles by George Kapetanios

George Kapetanios

King's College, London

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics

Simon Price

Essex Business School; City University London - Department of Economics

Date Written: May 2007

Abstract

The Bank of England has constructed a 'suite of statistical forecasting models' (the 'Suite') providing judgement-free statistical forecasts of inflation and output growth as one of many inputs into the forecasting process, and to offer measures of relevant news in the data. The Suite combines a small number of forecasts generated using different sources of information and methodologies. The main combination methods employ weights that are equal or based on the Akaike information criterion (using likelihoods built from estimation errors). This paper sets a general context for this exercise, and describes some features of the Suite as it stood in May 2005. The forecasts are evaluated over the period of Bank independence (1997 Q2 to 2005 Q1) by a mean square error criterion. The forecast combinations generally lead to a reduction in forecast error, although over this period some of the benchmark models are hard to beat.

Keywords: Forecasting, forecast combining

JEL Classification: C530

Suggested Citation

Kapetanios, George and Labhard, Vincent and Price, Simon G., Forecast Combination and the Bank of England's Suite of Statistical Forecasting Models (May 2007). Bank of England Working Paper No. 323, Available at SSRN: https://ssrn.com/abstract=1008800 or http://dx.doi.org/10.2139/ssrn.1008800

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Simon G. Price (Contact Author)

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

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