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The geometric combination of Bayesian forecasting models

Author

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  • A. E. Faria

    (Department of Mathematics and Statistics, The Open University, Milton Keynes, UK)

  • E. Mubwandarikwa

    (Department of Mathematics and Statistics, The Open University, Milton Keynes, UK)

Abstract

A nonlinear geometric combination of statistical models is proposed as an alternative approach to the usual linear combination or mixture. Contrary to the linear, the geometric model is closed under the regular exponential family of distributions, as we show. As a consequence, the distribution which results from the combination is unimodal and a single location parameter can be chosen for decision making. In the case of Student t-distributions (of particular interest in forecasting) the geometric combination can be unimodal under a sufficient condition we have established. A comparative analysis between the geometric and linear combinations of predictive distributions from three Bayesian regression dynamic linear models, in a case of beer sales forecasting in Zimbabwe, shows the geometric model to consistently outperform its linear counterpart as well as its component models. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • A. E. Faria & E. Mubwandarikwa, 2008. "The geometric combination of Bayesian forecasting models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(6), pages 519-535.
    • Handle: RePEc:jof:jforec:v:27:y:2008:i:6:p:519-535
    DOI: 10.1002/for.1071
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    Cited by:

    1. Bacci, Livio Agnew & Mello, Luiz Gustavo & Incerti, Taynara & Paulo de Paiva, Anderson & Balestrassi, Pedro Paulo, 2019. "Optimization of combined time series methods to forecast the demand for coffee in Brazil: A new approach using Normal Boundary Intersection coupled with mixture designs of experiments and rotated fact," International Journal of Production Economics, Elsevier, vol. 212(C), pages 186-211.
    2. Kenneth Wallis, 2011. "Combining forecasts - forty years later," Applied Financial Economics, Taylor & Francis Journals, vol. 21(1-2), pages 33-41.
    3. Fabio Busetti, 2017. "Quantile Aggregation of Density Forecasts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 495-512, August.
    4. Andrawis, Robert R. & Atiya, Amir F. & El-Shishiny, Hisham, 2011. "Combination of long term and short term forecasts, with application to tourism demand forecasting," International Journal of Forecasting, Elsevier, vol. 27(3), pages 870-886, July.
    5. Bo Zhang, 2019. "Real‐time inflation forecast combination for time‐varying coefficient models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 38(3), pages 175-191, April.

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