Combining Judgment and Models


  • I am greatly indebted to Domenico Giannone, Lucrezia Reichlin, and Philippe Weil for invaluable guidance and advice. I am also grateful to Gunter Coenen, David De Antonio Liedo, Marco Del Negro, Andrea Ferrero, Mark Gertler, Paulo Santos Monteiro, Argia Sbordone, Frank Schorfheide, Andrea Tambalotti, Dan Waggoner, Raf Wouters, Tao Zha, and all seminar participants at the ECB, University of Pennsylvania, Federal Reserve Bank of New York, Federal Reserve Bank of Atlanta, and Federal Reserve Bank of Philadelphia for comments and useful discussions. Part of this paper was written during my stay at the National Bank of Belgium: I gratefully acknowledge their hospitality. I also thank two anonymous referees for their comments and suggestions.


This paper proposes a parsimonious and model-consistent method for combining forecasts generated by structural microfounded models and judgmental forecasts. The method delivers along several dimensions. First, it improves the forecasting performance of the model. Second, it allows interpreting the judgmental forecasts through the lens of the model. Finally, it provides a framework to assess the informational content of the judgmental forecasters. I illustrate the proposed methodology with a real-time forecasting exercise using a simple neo-Keynesian dynamic stochastic general equilibrium model and the Survey of Professional Forecasters.