A panel of ex-ante forecasts of a single time series is modeled as a dynamic factor model, where the conditional expectation is the single unobserved factor. When applied to out-of-sample forecasting, this leads to combination forecasts that are based on methods other than OLS. These methods perform well in a Monte Carlo experiment. These methods are evaluated empirically in a panel of simulated real-time computer-generated univariate forecasts of U.S. macroeconomic time series.
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
- JEL classification: C32, C22
- Key words: Combination forecasts, principal component regression, James-Stein estimation