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Costantini, Mauro
Gunter, Ulrich
Kunst, Robert M.
Year of Publication: 
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 309
We explore the benefits of forecast combinations based on forecast- encompassing tests compared to simple averages and to Bates-Granger combinations. We also consider a new combination method that fuses test-based and Bates-Granger weighting. For a realistic simulation design, we generate multivariate time-series samples from a macroe- conomic DSGE-VAR model. Results generally support Bates-Granger over uniform weighting, whereas benefits of test-based weights depend on the sample size and on the prediction horizon. In a corresponding application to real-world data, simple averaging performs best. Uni- form averages may be the weighting scheme that is most robust to empirically observed irregularities.
combining forecasts
encompassing tests
model selection
time series
DSGE-VAR model
Document Type: 
Working Paper

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