Learning Time-Varying Forecast Combinations

Antoine Mandel and Amir Sani ()
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Amir Sani: Centre d'Economie de la Sorbonne - Paris School of Economics, http://www.amirsani.com

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Non-parametric forecast combination methods choose a set of static weights to combine over candidate forecasts as opposed to traditional forecasting approaches, such as ordinary least squares, that combine over information (e.g. exogenous variables). While they are robust to noise, structural breaks, inconsistent predictors and changing dynamics in the target variable, sophisticated combination methods fail to outperform the simple mean. Time-varying weights have been suggested as a way forward. Here we address the challenge to “develop methods better geared to the intermittent and evolving nature of predictive relations” in Stock and Watson (2001) and propose a data driven machine learning approach to learn time-varying forecast combinations for output, inflation or any macroeconomic time series of interest. Further, the proposed procedure “hedges” combination weights against poor performance to the mean, while optimizing weights to minimize the performance gap to the best candidate forecast in hindsight. Theoretical results are reported along with empirical performance on a standard macroeconomic dataset for predicting output and inflation

Keywords: Forecast combinations; Machine Learning; Econometrics; Forecasting; Forecast combination Puzzle (search for similar items in EconPapers)
JEL-codes: C71 D85 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (5)

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Working Paper: Learning Time-Varying Forecast Combinations (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:16036

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