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Does forecast combination improve Norges Bank inflation forecasts?

  • Hilde C. Bjørnland

    (Norwegian School of Management (BI) and Norges Bank (Central Bank of Norway))

  • Karsten Gerdrup

    ()

    (Norges Bank (Central Bank of Norway))

  • Anne Sofie Jore

    ()

    (Norges Bank (Central Bank of Norway))

  • Christie Smith

    ()

    (Norges Bank (Central Bank of Norway))

  • Leif Anders Thorsrud

    ()

    (Norges Bank (Central Bank of Norway))

We develop a system that provides model-based forecasts for inflation in Norway. Forecasts are recursively evaluated from 1999 to 2008. The performance of the models over this period is then used to derive weights that are used to combine the forecasts. Our results indicate that model combination improves upon the point forecasts from individual models. Furthermore, when comparing the whole forecasting period; model combination outperforms Norges Banks own point forecast for inflation at the forecast horizon up to a year. By using a suite of models we allow for a greater range of modelling techniques and data to be used in the forecasting process.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2009/WP-20091/
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Paper provided by Norges Bank in its series Working Paper with number 2009/01.

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Length: 35 pages
Date of creation: 27 Jan 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_01
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  1. Ashley, Richard, 2003. "Statistically significant forecasting improvements: how much out-of-sample data is likely necessary?," International Journal of Forecasting, Elsevier, vol. 19(2), pages 229-239.
  2. Knut Are Aastveit & Tørres G. Trovik, 2008. "Nowcasting Norwegian GDP: The role of asset prices in a small open economy," Working Paper 2007/09, Norges Bank.
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  11. Kapetanios, G. & Labhard, V. & Price, S., 2007. "Forecasting using Bayesian and information theoretic model averaging: an application to UK inflation," Working Papers 07/15, Department of Economics, City University London.
  12. Aiolfi, Marco & Timmermann, Allan, 2006. "Persistence in forecasting performance and conditional combination strategies," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 31-53.
  13. Kadiyala, K Rao & Karlsson, Sune, 1997. "Numerical Methods for Estimation and Inference in Bayesian VAR-Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 99-132, March-Apr.
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  16. Don Coletti & Stephen Murchison, 2002. "Models in Policy-Making," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 19-26.
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