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Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts

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  • Krueger, Fabian

    () (Heidelburg Institute for Theoretical Studies)

  • Clark, Todd E.

    () (Federal Reserve Bank of Cleveland)

  • Ravazzolo, Francesco

    () (Norges Bank and the BI Norwegian Business School)

Abstract

This paper shows entropic tilting to be a flexible and powerful tool for combining medium-term forecasts from BVARs with short-term forecasts from other sources (nowcasts from either surveys or other models). Tilting systematically improves the accuracy of both point and density forecasts, and tilting the BVAR forecasts based on nowcast means and variances yields slightly greater gains in density accuracy than does just tilting based on the nowcast means. Hence entropic tilting can offer—more so for persistent variables than not-persistent variables—some benefits for accurately estimating the uncertainty of multi-step forecasts that incorporate nowcast information.

Suggested Citation

  • Krueger, Fabian & Clark, Todd E. & Ravazzolo, Francesco, 2015. "Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts," Working Papers (Old Series) 1439, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1439
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    Cited by:

    1. Gary Koop & Stuart McIntyre & James Mitchell, 2018. "UK regional nowcasting using a mixed frequency vector autoregressive model," Working Papers 1805, University of Strathclyde Business School, Department of Economics.
    2. Tallman, Ellis W. & Zaman, Saeed, 2018. "Combining Survey Long-Run Forecasts and Nowcasts with BVAR Forecasts Using Relative Entropy," Working Papers (Old Series) 1809, Federal Reserve Bank of Cleveland.
    3. repec:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-017-1228-3 is not listed on IDEAS

    More about this item

    Keywords

    Forecasting; Prediction; Bayesian Analysis;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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