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Combining Forecast Densities from VARs with Uncertain Instabilities

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Abstract

Recursive-weight forecast combination is often found to an ineffective method of improving point forecast accuracy in the presence of uncertain instabilities. We examine the effectiveness of this strategy for forecast densities using (many) VARs and ARs of output, prices and interest rates. Our proposed recursive-weights density combination strategy, based on the recursive logarithmic score of the forecast densities, produces accurate predictive densities by giving substantial weight to models that allow for structural breaks. In contrast, equal-weight combinations produce poor real-time US forecast densities for Great Moderation data. Classification-C32, C53, E37

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2008/dp08_18.pdf
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Bibliographic Info

Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2008/18.

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Length: 19 p.
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:nzb:nzbdps:2008/18

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  1. Anne Sofie Jore & James Mitchell & Shaun P. Vahey, 2010. "Combining forecast densities from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 621-634.
  2. John Geweke & Gianni Amisano, 2008. "Optimal Prediction Pools," Working Paper Series 22-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
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  6. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
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  8. Amisano, Gianni & Giacomini, Raffaella, 2007. "Comparing Density Forecasts via Weighted Likelihood Ratio Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 177-190, April.
  9. Jana Eklund & Sune Karlsson, 2007. "Forecast Combination and Model Averaging Using Predictive Measures," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 329-363.
  10. Geweke, John & Whiteman, Charles, 2006. "Bayesian Forecasting," Handbook of Economic Forecasting, Elsevier.
  11. Corradi, Valentina & Fernandez, Andres & Swanson, Norman R., 2009. "Information in the Revision Process of Real-Time Datasets," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 455-467.
  12. Michael P. Clements, 2004. "Evaluating the Bank of England Density Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 114(498), pages 844-866, October.
  13. Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010. "Forecast Combinations," CREATES Research Papers 2010-21, School of Economics and Management, University of Aarhus.
  14. Wallis, Kenneth F., 2003. "Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts," International Journal of Forecasting, Elsevier, vol. 19(2), pages 165-175.
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  22. Garratt, Anthony & Koop, Gary & Mise, Emi & Vahey, Shaun P., 2009. "Real-Time Prediction With U.K. Monetary Aggregates in the Presence of Model Uncertainty," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 480-491.
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  24. repec:nsr:niesrd:303 is not listed on IDEAS
  25. Valentina Corradi & Norman Swanson, 2004. "Predictive Density Evaluation," Departmental Working Papers 200419, Rutgers University, Department of Economics.
  26. repec:nsr:niesrd:320 is not listed on IDEAS
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