The Combination of Forecasts: An Application of a Time-Varying Simple Weighting Method to Inflation Forecasts in Turkey

International Research Journal of Applied Finance, Vol. 2, No. 3, pp. 270-301, March 2011

32 Pages Posted: 20 May 2011

See all articles by Gökhan Saz

Gökhan Saz

University of Vienna - Institute of Business Administration

Date Written: March 1, 2011

Abstract

We present a study on combining the forecasts from a time-series model and an econometric model in the context of the inflation rates of Turkey and propose a new weighting scheme, the time-varying simple weighting method. Our guiding principle for the deduction of this method is based on retaining the practicability and straightforwardness of simple averaging while avoiding the data-driven aspects of time-varying approaches. We further provide a topical and qualitative overview on the exhaustive literature of forecast combinations and apply our newly developed combination method to test for the prospective credibility of the inflation-targeting regime of the central bank of the Republic of Turkey.

Keywords: Forecast combination, Combination weights, Autoregressive Moving Average, Time Series, Forecast, Forecasting, Econometric modeling, Consumer Price Index, CPI, Inflation

JEL Classification: C32, C53, E37, E31

Suggested Citation

Saz, Gökhan, The Combination of Forecasts: An Application of a Time-Varying Simple Weighting Method to Inflation Forecasts in Turkey (March 1, 2011). International Research Journal of Applied Finance, Vol. 2, No. 3, pp. 270-301, March 2011, Available at SSRN: https://ssrn.com/abstract=1845707

Gökhan Saz (Contact Author)

University of Vienna - Institute of Business Administration ( email )

Bruenner Strasse 72
Vienna, A1210
Austria

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