IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Forecast Combinations

  • Timmermann, Allan G

Forecast combinations have frequently been found in empirical studies to produce better forecasts on average than methods based on the ex-ante best individual forecasting model. Moreover, simple combinations that ignore correlations between forecast errors often dominate more refined combination schemes aimed at estimating the theoretically optimal combination weights. In this paper we analyse theoretically the factors that determine the advantages from combining forecasts (for example, the degree of correlation between forecast errors and the relative size of the individual models’ forecast error variances). Although the reasons for the success of simple combination schemes are poorly understood, we discuss several possibilities related to model misspecification, instability (non-stationarities) and estimation error in situations where the numbers of models is large relative to the available sample size. We discuss the role of combinations under asymmetric loss and consider combinations of point, interval and probability forecasts.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5361
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5361.

as
in new window

Length:
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:cpr:ceprdp:5361
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Allan Timmermann & M. Hashem Pesaran, 2003. "Small Sample Properties of Forecasts from Autoregressive Models under Structural Breaks," CESifo Working Paper Series 990, CESifo Group Munich.
  2. David Hendry & Michael Clements, 2001. "Pooling of Forecasts," Economics Series Working Papers 2002-W09, University of Oxford, Department of Economics.
  3. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
  4. Anthony Garratt & Gary Koop & Emi Mise & Shaun Vahey, 2008. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2008/13, Reserve Bank of New Zealand.
  5. 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.
  6. Teräsvirta, Timo, 2005. "Forecasting economic variables with nonlinear models," SSE/EFI Working Paper Series in Economics and Finance 598, Stockholm School of Economics, revised 29 Dec 2005.
  7. Ravi Jagannathan & Tongshu Ma, 2003. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," Journal of Finance, American Finance Association, vol. 58(4), pages 1651-1684, 08.
  8. Francis X. Diebold, 1989. "Forecast combination and encompassing: reconciling two divergent literatures," Finance and Economics Discussion Series 80, Board of Governors of the Federal Reserve System (U.S.).
  9. Ghysels, Eric & Granger, Clive W J & Siklos, Pierre L, 1996. "Is Seasonal Adjustment a Linear or Nonlinear Data-Filtering Process? Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 396-97, July.
  10. Clements, Michael P. & Hendry, David F., 2006. "Forecasting with Breaks," Handbook of Economic Forecasting, Elsevier.
  11. Ledoit, Olivier & Wolf, Michael, 2003. "Improved estimation of the covariance matrix of stock returns with an application to portfolio selection," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 603-621, December.
  12. Allan Timmermann & Andrew J. Patton, 2004. "Properties of Optimal Forecasts," Econometric Society 2004 North American Winter Meetings 234, Econometric Society.
  13. Findley, David F, 1996. "Is Seasonal Adjustment a Linear or Nonlinear Data-Filtering Process? Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 389-93, July.
  14. Ghysels, E. & Granger, C.W.J. & Siklos, P.L., 1995. "Is Seasonal Adjustment a Linear or Nonlinear Data Filtring Process," Cahiers de recherche 9517, Universite de Montreal, Departement de sciences economiques.
  15. Clemen, Robert T. & Murphy, Allan H. & Winkler, Robert L., 1995. "Screening probability forecasts: contrasts between choosing and combining," International Journal of Forecasting, Elsevier, vol. 11(1), pages 133-145, March.
  16. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  17. Sune Karlsson & Tor Jacobson, 2004. "Finding good predictors for inflation: a Bayesian model averaging approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(7), pages 479-496.
  18. Yeung Lewis Chan & James H. Stock & Mark W. Watson, 1999. "A dynamic factor model framework for forecast combination," Spanish Economic Review, Springer;Spanish Economic Association, vol. 1(2), pages 91-121.
  19. Heejoon Kang, 1986. "Unstable Weights in the Combination of Forecasts," Management Science, INFORMS, vol. 32(6), pages 683-695, June.
  20. Capistrán, Carlos & Timmermann, Allan, 2009. "Forecast Combination With Entry and Exit of Experts," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 428-440.
  21. Bunn, Derek W., 1985. "Statistical efficiency in the linear combination of forecasts," International Journal of Forecasting, Elsevier, vol. 1(2), pages 151-163.
  22. Elliott, Graham & Timmermann, Allan G, 2004. "Optimal Forecast Combination Under Regime Switching," CEPR Discussion Papers 4649, C.E.P.R. Discussion Papers.
  23. Hylleberg, Svend, 1996. "Is Seasonal Adjustment a Linear or Nonlinear Data-Filtering Process? Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 388-89, July.
  24. Swanson, Norman R & Zeng, Tian, 2001. "Choosing among Competing Econometric Forecasts: Regression-Based Forecast Combination Using Model Selection," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(6), pages 425-40, September.
  25. Valentina Corradi & Andres Fernandez & Norman R. Swanson, 2008. "Information in the revision process of real-time datasets," Working Papers 08-27, Federal Reserve Bank of Philadelphia.
  26. Elliott, Graham & Timmermann, Allan, 2004. "Optimal forecast combinations under general loss functions and forecast error distributions," Journal of Econometrics, Elsevier, vol. 122(1), pages 47-79, September.
  27. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2004. "The generalised dynamic factor model: consistency and rates," ULB Institutional Repository 2013/10133, ULB -- Universite Libre de Bruxelles.
  28. PALM, Franz C. & ZELLNER, Arnold, . "To Combine or not to Combine? Issues of Combining Forecasts," CORE Discussion Papers RP 1027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  29. Makridakis, Spyros, 1989. "Why combining works?," International Journal of Forecasting, Elsevier, vol. 5(4), pages 601-603.
  30. Engle, Robert F. & Granger, C. W. J. & Kraft, Dennis, 1984. "Combining competing forecasts of inflation using a bivariate arch model," Journal of Economic Dynamics and Control, Elsevier, vol. 8(2), pages 151-165, November.
  31. Marco Aiolfi & Carlo Ambrogio Favero, . "Model Uncertainty, Thick Modelling and the predictability of Stock Returns," Working Papers 221, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  32. Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010. "Forecast Combinations," CREATES Research Papers 2010-21, Department of Economics and Business Economics, Aarhus University.
  33. repec:cup:etheor:v:13:y:1997:i:6:p:808-17 is not listed on IDEAS
  34. Diebold, Francis X, 1988. "Serial Correlation and the Combination of Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(1), pages 105-11, January.
  35. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(06), pages 808-817, December.
  36. Michael ARTIS & Anindya BANERJEE & Massimiliano MARCELLINO, 2001. "Factor Forecasts for the UK," Economics Working Papers ECO2001/15, European University Institute.
  37. Granger, Clive W. J. & Jeon, Yongil, 2004. "Thick modeling," Economic Modelling, Elsevier, vol. 21(2), pages 323-343, March.
  38. Clemon, Robert T & Winkler, Robert L, 1986. "Combining Economic Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 39-46, January.
  39. Jeremy Smith & Kenneth F. Wallis, 2009. "A Simple Explanation of the Forecast Combination Puzzle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 331-355, 06.
  40. James H. Stock & Mark W. Watson, 1994. "Evidence on Structural Instability in Macroeconomic Time Series Relations," NBER Technical Working Papers 0164, National Bureau of Economic Research, Inc.
  41. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  42. Sunil Gupta & Peter C. Wilton, 1987. "Combination of Forecasts: An Extension," Management Science, INFORMS, vol. 33(3), pages 356-372, March.
  43. Min, C.K. & Zellner, A., 1992. ""Bayesian and Non-Bayesian Methods for Combining Models and Forecasts with Applications to Forecasting International Growth Rates"," Papers 90-92-23, California Irvine - School of Social Sciences.
  44. LeSage, James P & Magura, Michael, 1992. "A Mixture-Model Approach to Combining Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 445-52, October.
  45. Robert T. Clemen, 1987. "Combining Overlapping Information," Management Science, INFORMS, vol. 33(3), pages 373-380, March.
  46. Giacomini, Raffaella & Komunjer, Ivana, 2005. "Evaluation and Combination of Conditional Quantile Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 416-431, October.
  47. Swanson, Norman R. & White, Halbert, 1997. "Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models," International Journal of Forecasting, Elsevier, vol. 13(4), pages 439-461, December.
  48. Diebold, Francis X. & Pauly, Peter, 1990. "The use of prior information in forecast combination," International Journal of Forecasting, Elsevier, vol. 6(4), pages 503-508, December.
  49. Spyros Makridakis & Robert L. Winkler, 1983. "Averages of Forecasts: Some Empirical Results," Management Science, INFORMS, vol. 29(9), pages 987-996, September.
  50. Zellner, Arnold & Hong, Chansik & Min, Chung-ki, 1991. "Forecasting turning points in international output growth rates using Bayesian exponentially weighted autoregression, time-varying parameter, and pooling techniques," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 275-304.
  51. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, November.
  52. Deutsch, Melinda & Granger, Clive W. J. & Terasvirta, Timo, 1994. "The combination of forecasts using changing weights," International Journal of Forecasting, Elsevier, vol. 10(1), pages 47-57, June.
  53. Watson, Mark W, 1996. "Is Seasonal Adjustment a Linear or Nonlinear Data-Filtering Process? Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 394-96, July.
  54. Marcellino, Massimiliano, 2002. "Forecast Pooling for Short Time Series of Macroeconomic Variables," CEPR Discussion Papers 3313, C.E.P.R. Discussion Papers.
  55. Francis X. Diebold & Jose A. Lopez, 1996. "Forecast Evaluation and Combination," NBER Technical Working Papers 0192, National Bureau of Economic Research, Inc.
  56. Granger, Clive W.J. & Machina, Mark J., 2006. "Forecasting and Decision Theory," Handbook of Economic Forecasting, Elsevier.
  57. Makridakis, Spyros & Hibon, Michele, 2000. "The M3-Competition: results, conclusions and implications," International Journal of Forecasting, Elsevier, vol. 16(4), pages 451-476.
  58. Figlewski, Stephen & Urich, Thomas, 1983. " Optimal Aggregation of Money Supply Forecasts: Accuracy, Profitability and Market Efficiency," Journal of Finance, American Finance Association, vol. 38(3), pages 695-710, June.
  59. Robert L. Winkler, 1981. "Combining Probability Distributions from Dependent Information Sources," Management Science, INFORMS, vol. 27(4), pages 479-488, April.
  60. Aiolfi, Marco & Timmermann, Allan, 2006. "Persistence in forecasting performance and conditional combination strategies," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 31-53.
  61. Pesaran, M. Hashem & Timmermann, Allan, 2007. "Selection of estimation window in the presence of breaks," Journal of Econometrics, Elsevier, vol. 137(1), pages 134-161, March.
  62. Winkler, Robert L., 1989. "Combining forecasts: A philosophical basis and some current issues," International Journal of Forecasting, Elsevier, vol. 5(4), pages 605-609.
  63. 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.
  64. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
  65. Bell, William R, 1996. "Is Seasonal Adjustment a Linear or Nonlinear Data-Filtering Process? Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 387-88, July.
  66. Michael P. Clements & David I. Harvey, 2010. "Forecast encompassing tests and probability forecasts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 1028-1062.
  67. Armstrong, J. Scott, 1989. "Combining forecasts: The end of the beginning or the beginning of the end?," International Journal of Forecasting, Elsevier, vol. 5(4), pages 585-588.
  68. Yock Y. Chong & David F. Hendry, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Oxford University Press, vol. 53(4), pages 671-690.
  69. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5361. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.