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Choosing among Competing Econometric Forecasts: Regression-Based Forecast Combination Using Model Selection

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Swanson, Norman R
Zeng, Tian

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Abstract

Forecast combination based on a model selection approach is discussed and evaluated. In addition, a combination approach based on ex ante predictive ability is outlined. The model selection approach which we examine is based on the use of Schwarz (SIC) or the Akaike (AIC) Information Criteria. Monte Carlo experiments based on combination forecasts constructed using possibly (misspecified) models suggest that the SIC offers a potentially useful combination approach, and that further investigation is warranted. For example, combination forecasts from a simple averaging approach MSE-dominate SIC combination forecasts less than 25% of the time in most cases, while other "standard" combination approaches fare even worse. Alternative combination approaches are also compared by conducting forecasting experiments using nine US macroeconomic variables. In particular, artificial neural networks (ANN), linear models, and professional forecasts are used to form real-time forecasts of the variables, and it is shown via a series of experiments that SIC, t-statistic, and averaging combination approaches dominate various other combination approaches. An additional finding is that while ANN models may not MSE-dominate simpler linear models, combinations of forecasts from these two models outperform either individual forecast, for a subset of the economic variables examined. Copyright © 2001 by John Wiley & Sons, Ltd.

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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 20 (2001)
Issue (Month): 6 (September)
Pages: 425-40
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Handle: RePEc:jof:jforec:v:20:y:2001:i:6:p:425-40

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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  1. Mark Greer, 2005. "Combination forecasting for directional accuracy: An application to survey interest rate forecasts," Journal of Applied Statistics, Taylor and Francis Journals, vol. 32(6), pages 607-615, August. [Downloadable!] (restricted)
  2. David Jamieson Bolder & Yuliya Romanyuk, 2008. "Combining Canadian Interest-Rate Forecasts," Working Papers 08-34, Bank of Canada. [Downloadable!]
  3. Inoue, Atsushi & Kilian, Lutz, 2003. "On the Selection of Forecasting Models," CEPR Discussion Papers 3809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers 411, U.S. Bureau of Labor Statistics. [Downloadable!]
  5. Timmermann, Allan G, 2005. "Forecast Combinations," CEPR Discussion Papers 5361, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Carlos Capistrán & Allan Timmermann, 2008. "Forecast Combination With Entry and Exit of Experts," CREATES Research Papers 2008-55, School of Economics and Management, University of Aarhus. [Downloadable!]
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