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Nonlinear forecast combinations: An example using euro-area real GDP growth

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  • Gibson, Heather D.
  • Hall, Stephen G.
  • Tavlas, George S.

Abstract

The forecasting literature shows that when a number of different forecasters produce forecasts of the same variable it is almost always possible to produce a better forecast by linearly combining the individual forecasts. Moreover, it is often argued that a simple average of the forecasts will outperform more complex combination methods. This paper shows that, analytically, nonlinear combinations of forecasts are superior to linear combinations. Empirical results, based on comparisons of real GDP growth projections with outturns for the euro area using time-varying-coefficient estimation, confirm that analytical result, especially for periods marked by structural changes.

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  • Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2020. "Nonlinear forecast combinations: An example using euro-area real GDP growth," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 579-589.
    • Handle: RePEc:eee:jeborg:v:180:y:2020:i:c:p:579-589
    DOI: 10.1016/j.jebo.2018.09.021
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    References listed on IDEAS

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    7. Engle, Robert F. & White (the late), Halbert (ed.), 1999. "Cointegration, Causality, and Forecasting: Festschrift in Honour of Clive W. J. Granger," OUP Catalogue, Oxford University Press, number 9780198296836.
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    Cited by:

    1. Stephen G. Hall & George S. Tavlas & Yongli Wang, 2023. "Forecasting inflation: The use of dynamic factor analysis and nonlinear combinations," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 514-529, April.

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    More about this item

    Keywords

    Nonlinear forecast combinations; Nonlinear models; Time-varying coefficients;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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