Combination Schemes for Turning Point Predictions
32 Pages Posted: 7 May 2013
Date Written: April 30, 2013
We propose new forecast combination schemes for predicting turning points of business cycles. The combination schemes deal with the forecasting performance of a given set of models and possibly providing better turning point predictions. We consider turning point predictions generated by autoregressive (AR) and Markov-Switching AR models, which are commonly used for business cycle analysis. In order to account for parameter uncertainty we consider a Bayesian approach to both estimation and prediction and compare, in terms of statistical accuracy, the individual models and the combined turning point predictions for the United States and Euro area business cycles.
Keywords: Turning Points, Markov-switching, Forecast Combination, Bayesian Model Averaging
JEL Classification: C11, C15, C53, E37
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