A Bayesian Method of Forecast Averaging: An Application to the Expectations Survey of BCRA
The BCRA publishes monthly an expectations survey (REM) that summaries the forecasts and projections of a group of economic analysts and consultants. The BCRA publishes only the mean, the median, and the standard deviation of the sample received. The logic for using these statistics is that all participants are to be treated equally. Under the assumption that some forecasters have better underlying models than others, one might be able to improve the accuracy of the aggregate forecast by giving greater priority to those who have historically predicted better. The BCRA does not have access to the models used to make the predictions, only the forecasts are provided. An averaging method that puts higher weights on the predictions of those forecasters who have done best in the past should be able to produce a better aggregate forecast. The problem is how to determine these weights. In this paper, we develop a Bayesian averaging method that can estimate those weights. The aggregate forecasts that come from our Bayesian averaging provides statistically better forecasts than the mean, the median, and other methods traditionally used. In particular, the method developed in this paper is much better at detecting changes in the trends of the variables. The aggregate predictions published from the REM provide information that is useful, not only for monetary and economic policy decisions, but also for the consumption and business decisions of private economic agents. Improving these forecasts is of benefit to all members of the economy.
Volume (Year): 1 (2006)
Issue (Month): 45 (October)
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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.:
- Jacobson, Tor & Karlsson, Sune, 2002.
"Finding Good Predictors for Inflation: A Bayesian Model Averaging Approach,"
Working Paper Series
138, Sveriges Riksbank (Central Bank of Sweden).
- Sune Karlsson & Tor Jacobson, 2004. "Finding good predictors for inflation: a Bayesian model averaging approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(7), pages 479-496.
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