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Does Forecast Combination Improve Norges Bank Inflation Forecasts?

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Listed:
  • Hilde C. Bjørnland
  • Karsten Gerdrup
  • Anne Sofie Jore
  • Christie Smith
  • Leif Anders Thorsrud

Abstract

We develop a system that provides model-based forecasts for inflation in Norway. We recursively evaluate quasi out-of-sample forecasts from a large suite of models from 1999 to 2009. The performance of the models are then used to derive quasi real time weights that are used to combine the forecasts. Our results indicate that a combination forecast improves upon the point forecasts from individual models. Furthermore, a combination forecast out-performs Norges Bank?s own point forecast for inflation. The beneficial results are obtained using a trimmed weighted average. Some degree of trimming is required for the combination forecasts to out-perform the judgmental forecasts from the policymaker.
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Suggested Citation

  • Hilde C. Bjørnland & Karsten Gerdrup & Anne Sofie Jore & Christie Smith & Leif Anders Thorsrud, 2012. "Does Forecast Combination Improve Norges Bank Inflation Forecasts?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(2), pages 163-179, April.
  • Handle: RePEc:bla:obuest:v:74:y:2012:i:2:p:163-179
    DOI: j.1468-0084.2011.00639.x
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    File URL: http://hdl.handle.net/10.1111/j.1468-0084.2011.00639.x
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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