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Adjusting for Information Content when Comparing Forecast Performance

Author

Listed:
  • Andersson, Michael K.

    (Finansinspektionen)

  • Aranki, Ted

    (Monetary Policy Department, Central Bank of Sweden)

  • Reslow, André

    (Monetary Policy Department, Central Bank of Sweden)

Abstract
Cross institutional forecast evaluations may be severely distorted by the fact that forecasts are made at different points in time, and thus with different amount of information. This paper proposes a method to account for these differences. The method computes the timing effect and the forecaster's ability simultaneously. Monte Carlo simulation demonstrate that evaluations that do not adjust for the differences in information content may be misleading. In addition, the method is applied on a real-world data set of 10 Swedish forecasters for the period 1999-2015. The results show that the ranking of the forecasters is affected by the proposed adjustment.

Suggested Citation

  • Andersson, Michael K. & Aranki, Ted & Reslow, André, 2016. "Adjusting for Information Content when Comparing Forecast Performance," Working Paper Series 328, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0328
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2016/rap_wp328_160915.pdf
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    References listed on IDEAS

    as
    1. Allan Timmermann, 2007. "An Evaluation of the World Economic Outlook Forecasts," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 1-33, May.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. Laura Gonzalez Cabanillas & Alessio Terzi, 2012. "The accuracy of the European Commission's forecasts re-examined," European Economy - Economic Papers 2008 - 2015 476, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Lukas Vogel, 2007. "How do the OECD Growth Projections for the G7 Economies Perform?: A Post-Mortem," OECD Economics Department Working Papers 573, OECD Publishing.
    5. Gneiting, Tilmann, 2011. "Making and Evaluating Point Forecasts," Journal of the American Statistical Association, American Statistical Association, vol. 106(494), pages 746-762.
    6. Davies, Antony, 2006. "A framework for decomposing shocks and measuring volatilities derived from multi-dimensional panel data of survey forecasts," International Journal of Forecasting, Elsevier, vol. 22(2), pages 373-393.
    7. Andrew Bauer & Robert A. Eisenbeis & Daniel F. Waggoner & Tao Zha, 2003. "Forecast evaluation with cross-sectional data: The Blue Chip Surveys," Economic Review, Federal Reserve Bank of Atlanta, vol. 88(Q2), pages 17-31.
    8. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 205-227, July.
    9. Boero, Gianna & Smith, Jeremy & Wallis, Kenneth F., 2008. "Evaluating a three-dimensional panel of point forecasts: The Bank of England Survey of External Forecasters," International Journal of Forecasting, Elsevier, vol. 24(3), pages 354-367.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Cipullo, Davide & Reslow, André, 2019. "Biased Forecasts to Affect Voting Decisions? The Brexit Case," Working Paper Series 364, Sveriges Riksbank (Central Bank of Sweden).
    2. Cipullo, Davide & Reslow, André, 2022. "Electoral cycles in macroeconomic forecasts," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 307-340.
    3. Reslow, André, 2019. "Inefficient Use of Competitors'Forecasts?," Working Paper Series 380, Sveriges Riksbank (Central Bank of Sweden).
    4. Kontogeorgos, Georgios & Lambrias, Kyriacos, 2019. "An analysis of the Eurosystem/ECB projections," Working Paper Series 2291, European Central Bank.
    5. Ard Reijer & Andreas Johansson, 2019. "Nowcasting Swedish GDP with a large and unbalanced data set," Empirical Economics, Springer, vol. 57(4), pages 1351-1373, October.

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    More about this item

    Keywords

    Forecast error; Forecast comparison; Publication time; Evaluation; Error component model; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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