A hierarchical procedure for the combination of forecasts

Mauro Costantini and Carmine Pappalardo

International Journal of Forecasting, 2010, vol. 26, issue 4, 725-743

Abstract: This paper proposes a strategy to increase the efficiency of forecast combination. Given the availability of a wide range of forecasts for the same variable of interest, our goal is to apply combining methods to a restricted set of models. With this aim, a hierarchical procedure based on an encompassing test is considered. First, forecasting models are ranked according to a measure of predictive accuracy (RMSFE). The models are then selected for combination such that each forecast is not encompassed by any of the competing forecasts. Thus the hierarchical procedure represents a compromise between model selection and model averaging. The robustness of the procedure is investigated in terms of the relative RMSFE using ISAE (Institute for Studies and Economic Analyses) short-term forecasting models for monthly industrial production in Italy.

Keywords: Combining; forecasts; Econometric; models; Evaluating; forecasts; Model; selection; Time; series (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:26:y::i:4:p:725-743

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