Ruhr Economic Papers

Ruhr Economic Papers #546

Crowdsourcing of Economic Forecast – Combination of Forecasts Using Bayesian Model Averaging

by Dongkoo Kim, Tae-hwan Rhee, Keunkwan Ryu and Changmock Shin

RWI, 03/2015, 28 S./p., 8 Euro, ISBN 978-3-86788-624-6 DOI: 10.4419/86788624



Economic forecasts are quite essential in our daily lives, which is why many research institutions periodically make and publish forecasts of main economic indicators. We ask (1) whether we can consistently have a better prediction when we combine multiple forecasts of the same variable and (2) if we can, what will be the optimal method of combination. We linearly combine multiple linear combinations of existing forecasts to form a new forecast (“combination of combinations”), and the weights are given by Bayesian model averaging. In the case of forecasts on Germany’s real GDP growth rate, this new forecast dominates any single forecast in terms of root-mean-square prediction errors.

JEL-Classification: E32, E37

Keywords: Combination of forecasts; Bayesian model averaging