Special Issue Article - Forecast Uncertainty in Macroeconomics and Finance. Guest Editor: Tim Bollerslev Guest Editors: Matteo Ciccarelli and Kirstin Hubrich
Combining forecast densities from VARs with uncertain instabilities
Article first published online: 24 FEB 2010
Copyright © 2010 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Special Issue: Forecast Uncertainty in Macroeconomics and Finance. Editor: Tim Bollerslev Guest Editors: Matteo Ciccarelli and Kirstin Hubrich
Volume 25, Issue 4, pages 621–634, June/July 2010
How to Cite
Jore, A. S., Mitchell, J. and Vahey, S. P. (2010), Combining forecast densities from VARs with uncertain instabilities. J. Appl. Econ., 25: 621–634. doi: 10.1002/jae.1162
- Issue published online: 4 MAY 2010
- Article first published online: 24 FEB 2010
- Manuscript Revised: 25 MAR 2009
- Manuscript Received: 17 JAN 2008
Recursive-weight forecast combination is often found to an ineffective method of improving point forecast accuracy in the presence of uncertain instabilities. We examine the effectiveness of this strategy for forecast densities using (many) vector autoregressive (VAR) and autoregressive (AR) models of output growth, inflation and interest rates. Our proposed recursive-weight density combination strategy, based on the recursive logarithmic score of the forecast densities, produces well-calibrated predictive densities for US real-time data by giving substantial weight to models that allow for structural breaks. In contrast, equal-weight combinations produce poorly calibrated forecast densities for Great Moderation data. Copyright © 2010 John Wiley & Sons, Ltd.