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Crowdsourcing of Economic Forecast – Combination of Forecasts Using Bayesian Model Averaging

Author

Listed:
  • Kim, Dongkoo
  • Rhee, Tae-hwan
  • Ryu, Keunkwan
  • Shin, Changmock

Abstract

Economic forecasts are quite essential in our daily lives, which is why many research institutions periodically make and publish forecasts of main economic indicators. We ask (1) whether we can consistently have a better prediction when we combine multiple forecasts of the same variable and (2) if we can, what will be the optimal method of combination. We linearly combine multiple linear combinations of existing forecasts to form a new forecast ('combination of combinations'), and the weights are given by Bayesian model averaging. In the case of forecasts on Germany's real GDP growth rate, this new forecast dominates any single forecast in terms of root-mean-square prediction errors.

Suggested Citation

  • Kim, Dongkoo & Rhee, Tae-hwan & Ryu, Keunkwan & Shin, Changmock, 2015. "Crowdsourcing of Economic Forecast – Combination of Forecasts Using Bayesian Model Averaging," Ruhr Economic Papers 546, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:546
    DOI: 10.4419/86788624
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    References listed on IDEAS

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    1. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    2. Bruce E. Hansen, 2007. "Least Squares Model Averaging," Econometrica, Econometric Society, vol. 75(4), pages 1175-1189, July.
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    More about this item

    Keywords

    Combination of forecasts; Bayesian model averaging;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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