Forecast Combinations

CREATES Research Paper No. 2010-21

35 Pages Posted: 19 May 2010

See all articles by Marco Aiolfi

Marco Aiolfi

QMA

Carlos Capistrán

Banco de México

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 17, 2010

Abstract

We consider combinations of subjective survey forecasts and model-based forecasts from linear and non-linear univariate specifications as well as multivariate factor-augmented models. Empirical results suggest that a simple equal-weighted average of survey forecasts outperform the best model-based forecasts for a majority of macroeconomic variables and forecast horizons. Additional improvements can in some cases be gained by using a simple equal-weighted average of survey and model-based forecasts. We also provide an analysis of the importance of model instability for explaining gains from forecast combination. Analytical and simulation results uncover break scenarios where forecast combinations outperform the best individual forecasting model.

Keywords: Time-series forecasts, survey forecasts, model instability

JEL Classification: C22, C53

Suggested Citation

Aiolfi, Marco and Capistrán Carmona, Carlos and Timmermann, Allan, Forecast Combinations (May 17, 2010). CREATES Research Paper No. 2010-21. Available at SSRN: https://ssrn.com/abstract=1609530 or http://dx.doi.org/10.2139/ssrn.1609530

Marco Aiolfi (Contact Author)

QMA ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Carlos Capistrán Carmona

Banco de México ( email )

Av. 5 de Mayo No. 1
Col. Centro
Mexico City, 06059
Mexico

HOME PAGE: http://carloscapistran.com

Allan Timmermann

UCSD ( email )

9500 Gilman Drive
La Jolla, CA 92093-0553
United States
858-534-0894 (Phone)

HOME PAGE: http://rady.ucsd.edu/people/faculty/timmermann/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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