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Many studies have found that forecast combination improves forecast accuracy. An often-used approach developed by Granger and Ramanathan (GR, 1984) utilises a linear-Gaussian regression model to combine point forecasts. This presentation generalises their approach for an asymmetrically distributed target variable. The copula point forecast combination methodology involves fitting marginal distributions for the target variable and the individual forecasts being combined and then estimating the correlation parameters capturing linear dependence. If the target variable is Gaussian distributed, the copula point combination is the GR combination. The author illustrates the methodology with two applications based on US macroeconomic variables that are asymmetrically distributed. The first application examines real-time forecasts for the Federal Funds rate. The second application considers forecasts for output growth. The copula point combinations outperform the individual forecasts and conventional GR combinations in both applications.
Professor Shaun Vahey joined the University of Warwick in August 2013. He previously taught at the University of Cambridge, the University of British Columbia, Claremont McKenna College, Melbourne Business School and the Australian National University. Shaun has delivered Executive-level education to the Reserve Bank of New Zealand, Norges Bank, Bank Negara Malaysia and the Australian Treasury. Shaun’s research has been published in academic journals including the American Economic Review, the Journal of Business and Economic Statistics, the Journal of Applied Econometrics and the Economic Journal. He has previously served as a Bank Official at the Bank of England, a Senior Adviser at the Reserve Bank of New Zealand, and as a Special Adviser at Norges Bank. Formerly a visiting scholar at the Reserve Bank of New Zealand and Norges Bank, Shaun’s consultancy experience includes forecasting advice to Rio Tinto. He earned his PhD from the University of British Columbia in 1995.
The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.