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Does Forecast Combination Improve Norges Bank Inflation Forecasts?

Authors


  • The authors thank two anonymous referees, Gernot Doppelhofer, James Mitchell and participants at seminars in Norges Bank, at the Norwegian School of Economics and Business Administration and at the 30th International Symposium on forecasting in San Diego. The usual disclaimer applies. The views expressed in this article are those of the authors and should not be attributed to Norges Bank nor to the Reserve Bank of New Zealand.

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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