Forecast Combination for U.S. Recessions with Real-Time Data
15 Pages Posted: 19 Jan 2013 Last revised: 6 Dec 2013
Date Written: December 2013
This paper proposes the use of forecast combination to improve predictive accuracy in forecasting the U.S. business cycle index as published by the Business Cycle Dating Committee of the NBER. It focuses on one-step ahead out-of-sample monthly forecast utilising the well-established coincident indicators and yield curve models, allowing for dynamics and real-time data revisions. Forecast combinations use log-score and quadratic-score based weights, which change over time. This paper finds that forecast accuracy improves when combining the probability forecasts of both the coincident indicators model and the yield curve model, compared to each model’s own forecasting performance.
Keywords: U.S. business cycle, forecast combination, density forecast, probit models, yield curve, coincident indicators
JEL Classification: C5, C3
Suggested Citation: Suggested Citation