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Forecast combination through dimension reduction techniques

  • Poncela, Pilar
  • Rodríguez, Julio
  • Sánchez-Mangas, Rocío
  • Senra, Eva

This paper considers several methods of producing a single forecast from several individual ones. We compare “standard” but hard to beat combination schemes (such as the average of forecasts at each period, or consensus forecast and OLS-based combination schemes) with more sophisticated alternatives that involve dimension reduction techniques. Specifically, we consider principal components, dynamic factor models, partial least squares and sliced inverse regression.

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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 27 (2011)
Issue (Month): 2 ()
Pages: 224-237

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Handle: RePEc:eee:intfor:v:27:y:2011:i:2:p:224-237
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  1. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2003. "The Generalized Dynamic Factor Model. One-Sided Estimation and Forecasting," LEM Papers Series 2003/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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  6. Heij, C. & Groenen, P.J.F. & van Dijk, D.J.C., 2005. "Forecast comparison of principal component regression and principal covariate regression," Econometric Institute Research Papers EI 2005-28, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  7. Mark W. Watson & James H. Stock, 2004. "Combination forecasts of output growth in a seven-country data set," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 405-430.
  8. Lima, Luiz Renato Regis de Oliveira & Jaime Júnior, Pedro, 2007. "A Panel Data Approach to Economic Forecasting: The Bias-Corrected Average Forecast," Economics Working Papers (Ensaios Economicos da EPGE) 650, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  9. David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford.
  10. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
  11. Francis X. Diebold & Jose A. Lopez, 1996. "Forecast Evaluation and Combination," NBER Technical Working Papers 0192, National Bureau of Economic Research, Inc.
  12. Pena, Daniel & Poncela, Pilar, 2004. "Forecasting with nonstationary dynamic factor models," Journal of Econometrics, Elsevier, vol. 119(2), pages 291-321, April.
  13. Kondylis, Athanassios & Whittaker, Joe, 2008. "Spectral preconditioning of Krylov spaces: Combining PLS and PC regression," Computational Statistics & Data Analysis, Elsevier, vol. 52(5), pages 2588-2603, January.
  14. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  15. Nolte, Ingmar & Pohlmeier, Winfried, 2007. "Using forecasts of forecasters to forecast," International Journal of Forecasting, Elsevier, vol. 23(1), pages 15-28.
  16. de Menezes, Lilian M. & W. Bunn, Derek & Taylor, James W., 2000. "Review of guidelines for the use of combined forecasts," European Journal of Operational Research, Elsevier, vol. 120(1), pages 190-204, January.
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