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Optimal combination of survey forecasts

Cristina Conflitti (), Christine De Mol and Domenico Giannone ()

International Journal of Forecasting, 2015, vol. 31, issue 4, 1096-1103

Abstract: We consider the problem of combining individual forecasts of real gross domestic product (GDP) growth and Harmonized Index of Consumer Prices (HICP) inflation from the Survey of Professional Forecasters (SPF) for the Euro area. Contrary to the common practice of using equal combination weights, we compute weights which are optimal in the sense that they minimize the mean square forecast error (MSFE) in the case of point forecasts and maximize a logarithmic score in the case of density forecasts. We show that this is a viable strategy even when the number of forecasts to be combined gets large, provided that we constrain these weights to be positive and to sum to one. Indeed, this enforces a form of shrinkage on the weights which ensures a reasonable out-of-sample performance of the combined forecasts.

Keywords: Forecast combination; Forecast evaluation; Survey of Professional Forecasters; Real-time data; Shrinkage; High-dimensional data (search for similar items in EconPapers)
Date: 2015
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Working Paper: Optimal Combination of Survey Forecasts (2012) Downloads
Working Paper: Optimal Combination of Survey Forecasts (2012) Downloads
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DOI: 10.1016/j.ijforecast.2015.03.009

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Handle: RePEc:eee:intfor:v:31:y:2015:i:4:p:1096-1103