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Why Do Pooled Forecasts Do Better Than Individual Forecasts Ex Post?

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Author Info

  • Diego Nocetti

    ()
    (Clarkson University)

  • William T. Smith

    ()
    (The University of Memphis)

Abstract

Pooled forecasts frequently outperform individual forecasts of economic time series. This paper shows that the introduction of model uncertainty into the formation of expectations can account for the regularity. We conjecture that agents learn in a Bayesian way, using an optimally designed combination of forecasts to form expectations. When these expectations alter the ex-post realization of the data generating mechanism the pooled forecast may dominate the best individual device.

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File URL: http://www.accessecon.com/pubs/EB/2006/Volume4/EB-06D80016A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 4 (2006)
Issue (Month): 36 ()
Pages: 1-7

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Handle: RePEc:ebl:ecbull:eb-06d80016

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Keywords: Expectations;

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References

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  1. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  2. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
  3. Ben S. Bernanke & Jean Boivin, 2001. "Monetary Policy in a Data-Rich Environment," NBER Working Papers 8379, National Bureau of Economic Research, Inc.
  4. Hendry, David F & Michael P. Clements, 2002. "Economic Forecasting: Some Lessons from Recent Research," Royal Economic Society Annual Conference 2002 99, Royal Economic Society.
  5. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
  6. William Brock & Steven Durlauf & Kenneth West, 2005. "Model uncertainty and policy evaluation: some theory and empirics," Proceedings, Federal Reserve Bank of San Francisco.
  7. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-60, September.
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Cited by:
  1. Nikolsko-Rzhevskyy, Alex, 2008. "Monetary Policy Evaluation in Real Time: Forward-Looking Taylor Rules Without Forward-Looking Data," MPRA Paper 11352, University Library of Munich, Germany.

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