Combining Forecasts: Performance and Coherence

Thomson, Mary, Pollock, Andrew C., Önkal, Dilek and Gönül, Sinan (2019) Combining Forecasts: Performance and Coherence. International Journal of Forecasting, 35 (2). pp. 474-484. ISSN 0169-2070

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Official URL: https://doi.org/10.1016/j.ijforecast.2018.10.006

Abstract

There is general agreement in many forecasting contexts that combining individual predictions leads to better final forecasts. However, the relative error reduction in a combined forecast depends upon the extent to which the component forecasts contain unique/independent information. Unfortunately, obtaining independent predictions is difficult in many situations, as these forecasts may be based on similar statistical models and/or overlapping information. The current study addresses this problem by incorporating a measure of coherence into an analytic evaluation framework so that the degree of independence between sets of forecasts can be identified easily. The framework also decomposes the performance and coherence measures in order to illustrate the underlying aspects that are responsible for error reduction. The framework is demonstrated using UK retail prices index inflation forecasts for the period 1998–2014, and implications for forecast users are discussed.

Item Type: Article
Uncontrolled Keywords: Forecast, Accuracy, Coherence, Composite forecasts, Inflation
Subjects: G300 Statistics
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Paul Burns
Date Deposited: 08 Oct 2018 10:34
Last Modified: 09 Jan 2020 14:38
URI: http://nrl.northumbria.ac.uk/id/eprint/36115

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