Evaluating density forecasts: model combination strategies versus the RBNZ

Chris McDonald and Leif Thorsrud

No DP2011/03, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: 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.

JEL-codes: C52 C53 E52 (search for similar items in EconPapers)
Pages: 36 p.
Date: 2011-08
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2011/03

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