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on Forecasting |
| By: | Kuo-Hsuan Chin (Department of Economics, Feng Chia University); Xue Li (Department of Economics, Institute of Chinese Financial Studies, Southwestern University of Finance and Economics) |
| Abstract: | We evaluate the performance of the individual and combination forecasts in the estimated Bayesian VARs with economic and non-economic information. Specifically, we conduct an out-of-sample forecasting experiment in the model with statistical and/or DSGE priors over the time period before and after the financial crisis. In the most of cases, we obtain the unbiased forecasts of the interest rate but the biased forecasts of output growth and inflation rates under the unbiasedness test. In particular, we find the estimation of Bayesian VARs with economic information about the financial friction is helpful to improve the forecasting performance of the interest rate, evaluated in terms of the modified DM test, point and density forecasts. Moreover, the combination forecasts of the interest rate generated from the model with both statistical and DSGE priors are unbiased, and they also perform better than the combination or the individual forecasts generated with only statistical priors at statistically significant level of 5%. The selection of the weighting-scheme in forecast combination, adopting equal weights for the simple average or the log predictive likelihoods in Bayesian model averaging, is irrelevant to the conclusion made above. |
| Keywords: | Bayesian Model Averaging, DSGE-VAR, Financial Friction, Forecast Combination. |
| JEL: | E37 E44 E47 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:5408084&r=for |
| By: | Alex Cukierman; Thomas Lustenberger |
| Abstract: | This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on 3- and 12-months ahead forecasts of short-term interest rates and of long-term bond yields for up to 33 countries collected by Consensus Economics. The main finding is that in many countries, less-precise forecasters weigh public information more heavily than more-precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less-precise forecasters herd after more-precise forecasters even in the absence of strategic considerations. We also document differences between the average forecasting errors of more- and less-able forecasters as well as substantial correlations between the forecast errors of different forecasters. |
| Keywords: | Forecasting interest rates and bond yields, impact of forecasting ability on forecast formation |
| JEL: | E47 G17 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2018-10&r=for |