nep-for New Economics Papers
on Forecasting
Issue of 2007‒12‒08
two papers chosen by
Rob J Hyndman
Monash University

  1. Forecasting using Bayesian and information theoretic model averaging: an application to UK in flation By George Kapetanios; Vincent Labhard; Simon Price
  2. Explaining and forecasting euro area exports - which competitiveness indicator performs best? By Michele Ca’ Zorzi; Bernd Schnatz

  1. By: George Kapetanios (Queen Mary University of London); Vincent Labhard (Bank of England); Simon Price (Department of Economics, City University, London)
    Abstract: Model averaging often improves forecast accuracy over individual forecasts. It may also be seen as a means of forecasting in data-rich environments. Bayesian model averaging methods have been widely advocated, but a neglected frequentist approach is to use information theoretic based weights. We consider the use of information-theoretic model averaging in forecasting UK inflation, with a large data set, and find that it can be a powerful alternative to Bayesian averaging schemes.
    Keywords: forecasting, inflation, Bayesian model averaging, Akaike criteria, forecast combining.
    JEL: C11 C15 C53
    Date: 2007–11
  2. By: Michele Ca’ Zorzi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: From a conceptual point of view there is little consensus of what should be the “ideal indicator” of international cost and price competitiveness as each of the standard measures typically employed has its own merits and drawbacks. This calls for addressing the question from an empirical angle, searching for the indicator that best explains and helps forecast export developments. This paper constitutes a first attempt to systematically compare the properties of the alternative cost and price competitiveness measures of the euro area. Although they diverge sometimes, we find little evidence that there is one indicator consistently outperforming the other in terms of explaining and forecasting euro area exports. This suggests that the measures based on consumer and producer prices, which offer some advantages in terms of quality and timeliness, are good approximations of euro area price and cost competitiveness. JEL Classification: F17, F31, F41.
    Keywords: Real exchange rate, trade, exports, price competitiveness, euro area, forecast.
    Date: 2007–11

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