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Combining Forecast Densities from VARs with Uncertain Instabilities

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Recursive-weight forecast combination is often found to an ineffective method of improving point forecast accuracy in the presence of uncertain instabilities. We examine the effectiveness of this strategy for forecast densities using (many) VARs and ARs of output, prices and interest rates. Our proposed recursive-weights density combination strategy, based on the recursive logarithmic score of the forecast densities, produces accurate predictive densities by giving substantial weight to models that allow for structural breaks. In contrast, equal-weight combinations produce poor real-time US forecast densities for Great Moderation data. Classification-C32, C53, E37

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  • Anne Sofie Jore & James Mitchell & Shaun Vahey, 2008. "Combining Forecast Densities from VARs with Uncertain Instabilities," Reserve Bank of New Zealand Discussion Paper Series DP2008/18, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2008/18
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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