Combining Forecast Densities from VARs with Uncertain Instabilities

Dr. James Mitchell ()

No 303, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: 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 growth, inflation and interest rates. Our proposed recursiveweight density combination strategy, based on the recursive logarithmic score of the forecast densities, produces well-calibrated predictive densities for US real-time data by giving substantial weight to models that allow for structural breaks. In contrast, equal-weight combinations produce poorly-calibrated forecast densities for Great Moderation data.

Date: 2008-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:303

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