Crowdsourcing of Economic Forecast: Combination of Combinations of Individual Forecasts Using Bayesian Model Averaging

Seoul Journal of Economics, Vol. 34, No. 1, 2021

28 Pages Posted: 22 Mar 2021

See all articles by Tae-hwan Rhee

Tae-hwan Rhee

Sejong University, Department of Economics

Keunkwan Ryu

Seoul National University - School of Economics; Osaka University

Date Written: February 28, 2021

Abstract

Economic forecasts are essential in our daily lives. Accordingly, we ask the following questions: (1) Can we have an improved prediction when we additionally combine combinations of forecasts made by various institutions? (2) If we can, then what method of additional combination will be preferred? We non-linearly combine multiple linear combinations of existing forecasts to form a new forecast (“combination of combinations”), and the weights are given by Bayesian model averaging. In the case of forecasting South Korea’s real GDP growth rate, this new forecast dominates any single forecast in terms of root-mean-square prediction errors. When compared with simple linear combinations of forecasts, our method works as a “hedge” against prediction risks, avoiding the worst combination while maintaining prediction errors similar to those of the best combinations.

Keywords: Combination of combinations, Combination of forecasts, Bayesian model averaging

JEL Classification: C53, E37

Suggested Citation

Rhee, Tae-hwan and Ryu, Keunkwan, Crowdsourcing of Economic Forecast: Combination of Combinations of Individual Forecasts Using Bayesian Model Averaging (February 28, 2021). Seoul Journal of Economics, Vol. 34, No. 1, 2021, Available at SSRN: https://ssrn.com/abstract=3794503

Tae-hwan Rhee (Contact Author)

Sejong University, Department of Economics ( email )

209 Neungdong-ro, Gwangjin-gu
Seoul, 05006
Korea, Republic of (South Korea)
+82-2-6935-2474 (Phone)

HOME PAGE: http://home.sejong.ac.kr/~thrhee/

Keunkwan Ryu

Seoul National University - School of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742
Korea
82-2-880-6397 (Phone)
82-2-886-4231 (Fax)

Osaka University ( email )

1-1 Yamadaoka
Suita
Osaka, 565-0871
Japan

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