Advanced Search
MyIDEAS: Login

Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE-VAR System

Contents:

Author Info

  • Costantini, Mauro

    (Department of Economics and Finance, Brunel University London, United Kingdom)

  • Gunter, Ulrich

    (Austrian National Bank, Vienna, Austria)

  • Kunst, Robert M.

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria and Department of Economics, University of Vienna, Austria)

Abstract

We study the benefits of forecast combinations based on forecast-encompassing tests relative to uniformly weighted forecast averages across rival models. For a realistic simulation design, we generate multivariate time-series samples of size 40 to 200 from a macroeconomic DSGE-VAR model. Constituent forecasts of the combinations are formed from four linear autoregressive specifications, one of them a more sophisticated factor-augmented vector autoregression (FAVAR). The forecaster is assumed not to know the true data-generating model. Results depend on the prediction horizon. While one-step prediction fails to support test-based combinations at all sample sizes, the test-based procedure clearly dominates at prediction horizons greater than two.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ihs.ac.at/publications/eco/es-292.pdf
File Function: First version, 2012
Download Restriction: no

Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 292.

as in new window
Length: 39 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:ihs:ihsesp:292

Contact details of provider:
Postal: Stumpergasse 56, A-1060 Vienna, Austria
Phone: ++43 - (0)1 - 599 91 - 0
Fax: ++43 - (0)1 - 599 91 - 555
Web page: http://www.ihs.ac.at
More information through EDIRC

Order Information:
Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria

Related research

Keywords: Combining forecasts; encompassing tests; model selection; time series; DGSE-VAR model;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Alexei Onatski & Noah Williams, 2004. "Empirical and policy performance of a forward-looking monetary model," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  2. Norman Swanson & Oleg Korenok & Stanislav Radchenko, 2006. "International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence," Departmental Working Papers 200617, Rutgers University, Department of Economics.
  3. Smets, Frank & Wouters, Raf, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Series 0391, European Central Bank.
  4. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  5. David Harvey & Paul Newbold, 2000. "Tests for multiple forecast encompassing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 471-482.
  6. Jean Boivin & Marc Giannoni, 2006. "DSGE Models in a Data-Rich Environment," NBER Working Papers 12772, National Bureau of Economic Research, Inc.
  7. Rangan Gupta & Alain Kabundi, 2009. "A Large Factor Model for Forecasting Macroeconomic Variables in South Africa," Working Papers 137, Economic Research Southern Africa.
  8. Mauro Costantini & Robert M. Kunst, 2011. "Combining forecasts based on multiple encompassing tests in a macroeconomic core system," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(6), pages 579-596, September.
  9. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, Elsevier.
  10. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, October.
  11. Federico Ravenna, 2006. "Vector autoregressions and reduced form representations of DSGE models," Banco de Espa�a Working Papers 0619, Banco de Espa�a.
  12. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," Departmental Working Papers 200106, Rutgers University, Department of Economics.
  13. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  14. Christian Kascha & Karel Mertens, 2008. "Business cycle analysis and VARMA models," Working Paper 2008/05, Norges Bank.
  15. Costantini, Mauro & Pappalardo, Carmine, 2010. "A hierarchical procedure for the combination of forecasts," International Journal of Forecasting, Elsevier, vol. 26(4), pages 725-743, October.
  16. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
  17. Frank Smets & Raf Wouters, 2004. "Forecasting with a Bayesian DSGE Model: an application to the euro area," Working Paper Research 60, National Bank of Belgium.
  18. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2007. "On the Fit of New Keynesian Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 123-143, April.
  19. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  20. Neil R. Ericsson, 1991. "Parameter constancy, mean square forecast errors, and measuring forecast performance: an exposition, extensions, and illustration," International Finance Discussion Papers 412, Board of Governors of the Federal Reserve System (U.S.).
  21. Marco Del Negro & Frank Schorfheide, 2004. "Priors from General Equilibrium Models for VARS," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 643-673, 05.
  22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ihs:ihsesp:292. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Doris Szoncsitz).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.