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Forecast combination and the Bank of England’s suite of statistical forecasting models

  • George Kapetanios
  • Vincent Labhard
  • Simon Price

The Bank of England has constructed a ‘suite of statistical forecasting models’ (the ‘Suite’) providing judgement-free statistical forecasts of inflation and output growth as one of many inputs into the forecasting process, and to offer measures of relevant news in the data. The Suite combines a small number of forecasts generated using different sources of information and methodologies. The main combination methods employ weights that are equal or based on the Akaike information criterion (using likelihoods built from estimation errors). This paper sets a general context for this exercise, and describes some features of the Suite as it stood in May 2005. The forecasts are evaluated over the period of Bank independence (1997 Q2 to 2005 Q1) by a mean square error criterion. The forecast combinations generally lead to a reduction in forecast error, although over this period some of the benchmark models are hard to beat.

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Paper provided by Bank of England in its series Bank of England working papers with number 323.

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Date of creation: May 2007
Date of revision:
Handle: RePEc:boe:boeewp:323
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  1. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," NBER Working Papers 10220, National Bureau of Economic Research, Inc.
  2. Allan Timmermann & M. Hashem Pesaran, 1999. "A Recursive Modelling Approach to Predicting UK Stock Returns," FMG Discussion Papers dp322, Financial Markets Group.
  3. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  4. Boivin, Jean & Ng, Serena, 2005. "Understanding and Comparing Factor-Based Forecasts," MPRA Paper 836, University Library of Munich, Germany.
  5. George Kapetanios & Vincent Labhard & Simon Price, 2006. "Forecasting using Bayesian and Information Theoretic Model Averaging: An Application to UK Inflation," Working Papers 566, Queen Mary University of London, School of Economics and Finance.
  6. David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford.
  7. Todd E. Clark & Michael W. McCracken, 2003. "The predictive content of the output gap for inflation : resolving in-sample and out-of-sample evidence," Research Working Paper RWP 03-06, Federal Reserve Bank of Kansas City.
  8. Gary Koop & Simon Potter, 2003. "Forecasting in Large Macroeconomic Panels using Bayesian Model Averaging," Discussion Papers in Economics 04/16, Department of Economics, University of Leicester.
  9. Jonathan H. Wright, 2009. "Forecasting US inflation by Bayesian model averaging," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(2), pages 131-144.
  10. Wright, Jonathan H., 2008. "Bayesian Model Averaging and exchange rate forecasts," Journal of Econometrics, Elsevier, vol. 146(2), pages 329-341, October.
  11. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  12. George Kapetanios, 2005. "Variable Selection using Non-Standard Optimisation of Information Criteria," Working Papers 533, Queen Mary University of London, School of Economics and Finance.
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