Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268426 
Year of Publication: 
2023
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 1/2023
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Predictability is time and frequency dependent. We propose a new forecasting method - forecast combination in the frequency domain - that takes this fact into account. With this method we forecast the equity premium and real GDP growth rate. Combining forecasts in the frequency domain produces markedly more accurate predictions relative to the standard forecast combination in the time domain, both in terms of statistical and economic measures of out-of-sample predictability. In a real-time forecasting exercise, the flexibility of this method allows to capture remarkably well the sudden and abrupt drops associated with recessions and further improve predictability.
Subjects: 
forecast combination
frequency domain
equity premium
GDP growth
Haar filter
wavelets
JEL: 
C58
G11
G17
ISBN: 
978-952-323-430-7
Document Type: 
Working Paper

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