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Samuels, Jon D.
Sekkel, Rodrigo M.
Year of Publication: 
Series/Report no.: 
Bank of Canada Working Paper 2013-11
A longstanding finding in the forecasting literature is that averaging forecasts from different models often improves upon forecasts based on a single model, with equal weight averaging working particularly well. This paper analyzes the effects of trimming the set of models prior to averaging. We compare different trimming schemes and propose a new one based on Model Confidence Sets that take into account the statistical significance of historical out-of-sample forecasting performance. In an empirical application of forecasting U.S. macroeconomic indicators, we find significant gains in out-of-sample forecast accuracy from our proposed trimming method.
Econometric and statistical methods
Document Type: 
Working Paper
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