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Combining probability forecasts

  • Clements, Michael P.
  • Harvey, David I.

We consider different methods for combining probability forecasts. In empirical exercises, the data generating process of the forecasts and the event being forecast is not known, and therefore the optimal form of combination will also be unknown. We consider the properties of various combination schemes for a number of plausible data generating processes, and indicate which types of combinations are likely to be useful. We also show that whether forecast encompassing is found to hold between two rival sets of forecasts or not may depend on the type of combination adopted. The relative performances of the different combination methods are illustrated, with an application to predicting recession probabilities using leading indicators.

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File URL: http://www.sciencedirect.com/science/article/pii/S0169207010000075
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 27 (2011)
Issue (Month): 2 ()
Pages: 208-223

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Handle: RePEc:eee:intfor:v:27:y:2011:i:2:p:208-223
DOI: 10.1016/j.ijforecast.2009.12.016
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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  8. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  9. Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
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  11. Kamastra, M & Kennedy, P, 1996. "Combining Qualitative Forecasts Using Logit," Discussion Papers dp96-08, Department of Economics, Simon Fraser University.
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  16. Anderson, Heather M. & Vahid, Farshid, 2001. "Predicting The Probability Of A Recession With Nonlinear Autoregressive Leading-Indicator Models," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 482-505, September.
  17. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
  18. Hamilton, James D & Kim, Dong Heon, 2002. "A Reexamination of the Predictability of Economic Activity Using the Yield Spread," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 340-60, May.
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