Report

Forecast evaluation and combination

Abstract: Forecasts are of great importance and widely used in economics and finance. Quite simply, good forecasts lead to good decisions. The importance of forecast evaluation and combination techniques follows immediatelyforecast users naturally have a keen interest in monitoring and improving forecast performance. Here we provide a five-part selective account of forecast evaluation and combination methods. In the first, we discuss evaluation of a single forecast, and in particular, evaluation of whether and how it may be improved. In the second, we discuss the evaluation and comparison of the accuracy of competing forecasts. In the third, we discuss whether and how a set of forecasts may be combined to produce a superior composite forecast. In the fourth, we describe a number of forecast evaluation topics of particular relevance in economics and finance, including methods for evaluating direction-of-change forecasts, probability forecasts and volatility forecasts. In the fifth, we conclude.

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Research Paper

Publication Date: 1995

Number: 9525