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Combining Country-Specific Forecasts when Forecasting Euro Area Macroeconomic Aggregates

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  • Jing Zeng

    () (Department of Economics, University of Konstanz, Germany)

Abstract

European Monetary Union (EMU) member countries' forecasts are often combined to obtain the forecasts of the Euro area macroeconomic aggregate variables. The aggregation weights which are used to produce the aggregates are often considered as combination weights. This paper investigates whether using different combination weights instead of the usual aggregation weights can help to provide more accurate forecasts. In this context, we examine the performance of equal weights, the least squares estimators of the weights, the combination method recently proposed by Hyndman et al. (2011) and the weights suggested by shrinkage methods. We find that some variables like real GDP and GDP deflator can be forecasted more precisely by using flexible combination weights. Furthermore, combining only forecasts of the three largest European countries helps to improve the forecasting performance. The persistence of the individual data seems to play an important role for the relative performance of the combination.

Suggested Citation

  • Jing Zeng, 2015. "Combining Country-Specific Forecasts when Forecasting Euro Area Macroeconomic Aggregates," Working Paper Series of the Department of Economics, University of Konstanz 2015-11, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1511
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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_11_JingZeng_2015.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Forecast combination; aggregation; macroeconomic forecasting; hierarchical time series; persistence in data;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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