Does Forecast Combination Improve Norges Bank Inflation Forecasts?*

Hilde Christiane Bjørnland · Karsten R. Gerdrup · Anne Sofie Jore · Christie Smith · Leif Anders Thorsrud

65 citations0/0 files storedOxford Bulletin of Economics and Statistics

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Forecasting Techniques and Applications Monetary Policy and Economic Impact Grey System Theory Applications

Abstract

Abstract We develop a system that provides model‐based forecasts for inflation in Norway. We recursively evaluate quasi out‐of‐sample forecasts from a large suite of models from 1999 to 2009. The performance of the models are then used to derive quasi real time weights that are used to combine the forecasts. Our results indicate that a combination forecast improves upon the point forecasts from individual models. Furthermore, a combination forecast outperforms Norges Bank's own point forecast for inflation. The beneficial results are obtained using a trimmed weighted average. Some degree of trimming is required for the combination forecasts to outperform the judgmental forecasts from the policymaker.

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References

1994Comparing Predictive Accuracy 1969The Combination of Forecasts 2002Macroeconomic Forecasting Using Diffusion Indexes 2000The M3-Competition: results, conclusions and implications 1982The accuracy of extrapolation (time series) methods: Results of a forecasting competition 1996Asymptotic Inference about Predictive Ability 2006Chapter 4 Forecast Combinations 2004Combination forecasts of output growth in a seven‐country data set

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