Combining the Forecasts in the ECB Survey of Professional Forecasters: Can Anything Beat the Simple Average?

54 Pages Posted: 11 Dec 2010

See all articles by Veronique Genre

Veronique Genre

European Central Bank (ECB)

Geoff Kenny

European Central Bank (ECB)

Aidan Meyler

European Central Bank (ECB); Economist; Post graduate student

Allan Timmermann

UCSD ; Centre for Economic Policy Research (CEPR)

Date Written: December 3, 2010

Abstract

In this paper, we explore the potential gains from alternative combinations of the surveyed forecasts in the ECB Survey of Professional Forecasters. Our analysis encompasses a variety of methods including statistical combinations based on principal components analysis and trimmed means, performance-based weighting, least squares estimates of optimal weights as well as Bayesian shrinkage. We provide a pseudo real–time out-of-sample performance evaluation of these alternative combinations and check the sensitivity of the results to possible data-snooping bias. The latter robustness check is also informed using a novel real time meta selection procedure which is not subject to the data-snooping critique. For GDP growth and the unemployment rate, only few of the forecast combination schemes are able to outperform the simple equal-weighted average forecast. Conversely, for the inflation rate there is stronger evidence that more refined combinations can lead to improvement over this benchmark. In particular, for this variable, the relative improvement appears significant even controlling for data snooping bias.

Keywords: forecast combination, forecast evaluation, data snooping, real-time data, Survey of Professional Forecasters

JEL Classification: C22, C53

Suggested Citation

Genre, Veronique and Kenny, Geoff and Meyler, Aidan and Timmermann, Allan, Combining the Forecasts in the ECB Survey of Professional Forecasters: Can Anything Beat the Simple Average? (December 3, 2010). ECB Working Paper No. 1277, Available at SSRN: https://ssrn.com/abstract=1719622

Veronique Genre

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Geoff Kenny (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Aidan Meyler

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Economist

P.O. 559 Dame Street
Dublin 2, D2
Ireland

Post graduate student

Belfield
United States

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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