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Forecasting Euro Area Real GDP: Optimal Pooling of Information

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  • Oliver Hülsewig
  • Johannes Mayr
  • Timo Wollmershäuser

Abstract

This paper proposes a new method of forecasting euro area quarterly real GDP that uses area-wide indicators, which are derived by optimally pooling the information contained in national indicator series. Following the ideas of predictive modeling, we construct the area-wide indicators by utilizing weights that minimize the variance of the out-of-sample forecast errors of the area-wide target variable. In an out-of-sample forecast experiment we find that our optimal pooling of information approach outperforms alternative forecasting methods in terms of forecast accuracy.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-08/cesifo1_wp2371.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2371.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2371

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Related research

Keywords: forecasting; aggregation; model averaging; real time experiment;

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References

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  1. Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2003. "Leading Indicators for Euro-area Inflation and GDP Growth," Working Papers 235, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(2), pages 281-291, June.
  3. Brodie, Joshua & Daubechies, Ingrid & De Mol, Christine & Giannone, Domenico & Loris, Ignace, 2008. "Sparse and stable Markowitz portfolios," Working Paper Series, European Central Bank 0936, European Central Bank.
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Cited by:
  1. Mayr, Johannes, 2010. "Forecasting Macroeconomic Aggregates," Munich Dissertations in Economics, University of Munich, Department of Economics 11140, University of Munich, Department of Economics.
  2. Evgenia Kudymowa & Johanna Plenk & Klaus Wohlrabe, 2013. "Ifo World Economic Survey und die realwirtschaftliche Entwicklung in ausgewählten Ländern," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(19), pages 23-30, October.
  3. Evgenia Kudymowa & Johanna Plenk & Klaus Wohlrabe, 2014. "Ifo World Economic Survey and the Business Cycle in Selected Countries," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 14(4), pages 51-57, 01.

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