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Does Forecast Combination Improve Norges Bank Inflation Forecasts? *
Author(s) -
Bjørnland Hilde C.,
Gerdrup Karsten,
Jore Anne Sofie,
Smith Christie,
Thorsrud Leif Anders
Publication year - 2012
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2011.00639.x
Subject(s) - trimming , inflation (cosmology) , consensus forecast , econometrics , suite , point (geometry) , forecast verification , sample (material) , economics , forecast error , computer science , mathematics , geography , physics , geometry , archaeology , theoretical physics , operating system , thermodynamics
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.