Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity*

Kajal Lahiri, Huaming Peng and Xuguang Simon Sheng

A chapter in Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, 2022, vol. 43A, pp 29-50 from Emerald Group Publishing Limited

Abstract: From the standpoint of a policy maker who has access to a number of expert forecasts, the uncertainty of a combined or ensemble forecast should be interpreted as that of a typical forecaster randomly drawn from the pool. This uncertainty formula should incorporate forecaster discord, as justified by (i) disagreement as a component of combined forecast uncertainty, (ii) the model averaging literature, and (iii) central banks’ communication of uncertainty via fan charts. Using new statistics to test for the homogeneity of idiosyncratic errors under the joint limits with bothTandnapproaching infinity simultaneously, the authors find that some previously used measures can significantly underestimate the conceptually correct benchmark forecast uncertainty.

Keywords: Central Bank communication; disagreement; ensemble; forecast combination; panel data; uncertainty; C12; C33; E37 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity (2021)
Working Paper: Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity (2020)
Working Paper: Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532021000043a003

DOI: 10.1108/S0731-90532021000043A003

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