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The Use of Encompassing Tests for Forecast Combinations

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  • Turgut Kisinbay

Abstract

The paper proposes an algorithm that uses forecast encompassing tests for combining forecasts. The algorithm excludes a forecast from the combination if it is encompassed by another forecast. To assess the usefulness of this approach, an extensive empirical analysis is undertaken using a U.S. macroecoomic data set. The results are encouraging as the algorithm forecasts outperform benchmark model forecasts, in a mean square error (MSE) sense, in a majority of cases.

Suggested Citation

  • Turgut Kisinbay, 2007. "The Use of Encompassing Tests for Forecast Combinations," IMF Working Papers 07/264, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/264
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    Cited by:

    1. Cang, Shuang & Yu, Hongnian, 2014. "A combination selection algorithm on forecasting," European Journal of Operational Research, Elsevier, vol. 234(1), pages 127-139.
    2. Alessandro Girardi & Roberto Golinelli & Carmine Pappalardo, 2017. "The role of indicator selection in nowcasting euro-area GDP in pseudo-real time," Empirical Economics, Springer, vol. 53(1), pages 79-99, August.
    3. Morales-Arias, Leonardo & Moura, Guilherme V., 2013. "Adaptive forecasting of exchange rates with panel data," International Journal of Forecasting, Elsevier, vol. 29(3), pages 493-509.
    4. Costantini, Mauro & Pappalardo, Carmine, 2010. "A hierarchical procedure for the combination of forecasts," International Journal of Forecasting, Elsevier, vol. 26(4), pages 725-743, October.
    5. Antonis Michis, 2012. "Monitoring Forecasting Combinations with Semiparametric Regression Models," Working Papers 2012-02, Central Bank of Cyprus.
    6. Morales-Arias, Leonardo & Dross, Alexander, 2010. "Adaptive forecasting of exchange rates with panel data," Kiel Working Papers 1656, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Economic forecasting; Forecasting models; forecast combination; forecast encompassing; thick-modeling; forecasting; significance level; time series; significance levels; econometrics;

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