Evaluating density forecasts: model combination strategies versus the RBNZ
Forecasting the future path of the economy is essential for good monetary policy decisions. The recent financial crisis has highlighted the importance of tail events, and that assessing the central projection is not enough. The whole range of outcomes should be forecasted, evaluated and accounted for when making monetary policy decisions. As such, we construct density fore- casts using the historical performance of the Reserve Bank of New Zealand's (RBNZ) published point forecasts. We compare these implied RBNZ den- sities to similarly constructed densities from a suite of empirical models. In particular, we compare the implied RBNZ densities to combinations of density forecasts from the models. Our results reveal that the combined den- sities are comparable in performance and sometimes better than the implied RBNZ densities across many di erent horizons and variables. We also find that the combination strategies typically perform better than relying on the best model in real-time, that is the selection strategy.
|Date of creation:||Aug 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 64 4 471-3767
Fax: 64 4 471-2270
Web page: http://www.rbnz.govt.nzEmail:
More information through EDIRC
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.:
- Francis X. Diebold & Peter Pauly, 1987.
"The use of prior information in forecast combination,"
Special Studies Papers
218, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Ida Wolden Bache & James Mitchell & Francesco Ravazzolo & Shaun P. Vahey, 2009. "Macro modelling with many models," Working Paper 2009/15, Norges Bank.
- Eklund, Jana & Karlsson, Sune, 2005.
"Forecast Combination and Model Averaging using Predictive Measures,"
Working Paper Series
191, Sveriges Riksbank (Central Bank of Sweden).
- Jana Eklund & Sune Karlsson, 2007. "Forecast Combination and Model Averaging Using Predictive Measures," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 329-363.
- Eklund, Jana & Karlsson, Sune, 2005. "Forecast Combination and Model Averaging Using Predictive Measures," CEPR Discussion Papers 5268, C.E.P.R. Discussion Papers.
- Bloor, Chris & Matheson, Troy, 2011.
"Real-time conditional forecasts with Bayesian VARs: An application to New Zealand,"
The North American Journal of Economics and Finance,
Elsevier, vol. 22(1), pages 26-42, January.
- Chris Bloor & Troy Matheson, 2009. "Real-time conditional forecasts with Bayesian VARs: An application to New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2009/02, Reserve Bank of New Zealand.
- repec:nsr:niesrd:337 is not listed on IDEAS
- Aiolfi, Marco & Timmermann, Allan, 2006. "Persistence in forecasting performance and conditional combination strategies," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 31-53.
When requesting a correction, please mention this item's handle: RePEc:nzb:nzbdps:2011/03. 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: (Reserve Bank of New Zealand Knowledge Centre)
If references are entirely missing, you can add them using this form.