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on Forecasting |
| By: | Stephen Hall; James Mitchell |
| Abstract: | In this paper we investigate whether and how far density forecasts sensibly can be combined to produce a "better" pooled density forecast. In so doing we bring together two important but hitherto largely unrelated areas of the forecasting literature in economics, density forecasting and forecast combination. We provide simple Bayesian methods of pooling information across alternative density forecasts. We illustrate the proposed techniques in an application to two widely used published density forecasts for U.K. inflation. We examine whether in practice improved density forecasts for inflation, one year ahead, might have been obtained if one had combined the Bank of England and NIESR density forecasts or "fan charts". |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:249&r=for |
| By: | Stephen Hall; James Mitchell |
| Abstract: | This paper brings together two important but hitherto largely unrelated areas of the forecasting literature, density forecasting and forecast combination. It proposes a simple data-driven approach to direct combination of density forecasts using optimal weights. |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:248&r=for |
| By: | Oliver Blaskowitz; Helmut Herwartz; Gonzalo de Cadenas Santiago |
| Abstract: | In this study we forecast the term structure of FIBOR/EURIBOR swap rates by means of recursive vector autoregressive (VAR) models. In advance, a principal components analysis (PCA) is adopted to reduce the dimensionality of the term structure. To evaluate ex–ante forecasting performance for particular short, medium and long term rates and for the level, slope and curvature of the swap term structure, we rely on measures of both statistical and economic performance. Whereas the statistical performance is investigated by means of the Henrikkson–Merton statistic, the economic performance is assessed in terms of cash flows implied by alternative trading strategies. Arguing in favor of local homogeneity of term structure dynamics, we propose a data driven, adaptive model selection strategy to ’predict the best forecasting model’ out of a set of 100 alternative implementations of the PCA/VAR model. This approach is shown to outperform forecasting schemes relying on global homogeneity of the term structure. |
| Keywords: | Principal components, Factor Analysis, Ex–ante forecasting, EURIBOR swap rates, Term structure, Trading strategies |
| JEL: | C32 C53 E43 G29 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-024&r=for |
| By: | Sascha Mergner (AMB Generali Asset Managers); Jan Bulla (Georg-August-University, Goettingen) |
| Abstract: | This paper investigates the time-varying behavior of systematic risk for eighteen pan-European sectors. Using weekly data over the period 1987- 2005, four different modeling techniques in addition to the standard constant coefficient model are employed: a bivariate t-GARCH(1,1) model, two Kalman filter based approaches, a bivariate stochastic volatility model estimated via the efficient Monte Carlo likelihood technique as well as two Markov switching models. A comparison of the different models' ex-ante forecast performances indicates that the random walk process in connection with the Kalman filter is the preferred model to describe and forecast the time-varying behavior of sector betas in a European context. Remarkably, the Markov switching models yield a worse out-of-sample performance than standard OLS. |
| Keywords: | Markov switching; Kalman filter; stochastic volatility; efficient Monte Carlo likelihood; bivariate t-GARCH; European industry portfolios; time-varying beta risk |
| JEL: | C22 C32 G10 G12 G15 |
| Date: | 2005–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0510029&r=for |
| By: | Ingolf Dittmann; Christian Weiner |
| Abstract: | This paper investigates which comparables selection method generates the most precise forecasts when valuing European companies with the enterprise value to EBIT multiple. We also consider the USA as a reference point. It turns out that selecting comparable companies with similar return on assets clearly outperforms selections according to industry membership or total assets. Moreover, we investigate whether comparables should be selected from the same country, from the same region, or from all OECD members. For most European countries, choosing comparables from the 15 European Union member states yields the best forecasts. In contrast, for the UK and the US, comparables should be chosen from the same country only. |
| Keywords: | comparables, selection method, valuing companies, forecasts, EBIT, industry membership, ROA |
| JEL: | G19 M41 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-002&r=for |
| By: | James Bullard; George W. Evans; Seppo Honkapohja |
| Abstract: | We study how the use of judgement or “add-factors” in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which new phenomena, which we call exuberance equilibria, can exist in standard macroeconomic environments. Examples include a simple asset pricing model and the New Keynesian monetary policy framework. Inclusion of judgement in forecasts can lead to self-fulfilling fluctuations, but without the requirement that the underlying rational expectations equilibrium is locally indeterminate. We suggest ways in which policymakers might avoid unintended outcomes by adjusting policy to minimize the risk of exuberance equilibria. Key words: Learning, expectations, excess volatility, bounded rationality, monetary policy |
| JEL: | E52 E61 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0546&r=for |
| By: | Beckmann, Daniela; Menkhoff, Lukas; Sawischlewski, Katja |
| Abstract: | Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, policy-makers must decide about some EWSs elements, such as the sensitivity of the forecasts. Third, EWSs performance is increased by taking a logit model, shorter samples and a regional approach. Fourth, the finding of contagion may motivate policy to shield its economy against inefficient international financial markets. |
| Keywords: | early warning system, currency crises, emerging markets |
| JEL: | F33 F31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-322&r=for |
| By: | James Mitchell; Martin Weale |
| Abstract: | Business survey data are used widely as they offer timely information about the state of the economy. This paper addresses the problem of how best to infer a quantitative signal about economic growth from qualitative business survey data. A method drawing on the forecast combination literature is derived for producing quantitative best linear unbiased inference from qualitative panel survey data. This involves aggregating firm-level quantified estimates according to their reliability. We illustrate how the approach can be used to derive early estimates of official output growth data in the UK in an application to the panel of firm-level responses from the CBI's Industrial Trends Survey. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:261&r=for |
| By: | Martin Weale |
| Abstract: | This paper focusses on survey expectations and discusses their uses for testing and modeling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focusses on average expectations rather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectations are reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper then provides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:260&r=for |