Does forecast combination improve Norges Bank inflation forecasts?
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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 out-performs 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 out-perform the judgmental forecasts from the policymaker.
1/2010 and 2/2010 was published as CAMAR Working Paper Series (ISSN 1892-2198). From 2011 the series' name changed to CAMP Working Paper Series (ISSN 1893-4811).