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Seoul Journal of Economics - Vol. 34 , No. 1

[ Article ]
Seoul Journal of Economics - Vol. 34, No. 1, pp.99-125
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2021
Received 09 Sep 2020 Revised 17 Jan 2021 Accepted 25 Jan 2021
DOI: https://doi.org/10.22904/sje.2021.34.1.006

Crowdsourcing of Economic Forecast: Combination of Combinations of Individual Forecasts Using Bayesian Model Averaging
Tae-hwan Rhee ; Keunkwan Ryu
Tae-hwan Rhee, Corresponding Author, Associate Professor, Department of Economics, Sejong University, 209 Neungdong-ro, Gwangjin-gu, Seoul 05006, Korea, Tel: +82-2-6935-2474 (thrhee@sejong.ac.kr)
Keunkwan Ryu, Professor, Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Korea (ryu@snu.ac.kr)

JEL Classification: C53, E37


Abstract

Economic forecasts are essential in our daily lives. Accordingly, we ask the following questions: (1) Can we have an improved prediction when we additionally combine combinations of forecasts made by various institutions? (2) If we can, then what method of additional combination will be preferred? We non-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 forecasting South Korea’s real GDP growth rate, this new forecast dominates any single forecast in terms of root-mean-square prediction errors. When compared with simple linear combinations of forecasts, our method works as a “hedge” against prediction risks, avoiding the worst combination while maintaining prediction errors similar to those of the best combinations.


Keywords: Combination of combinations, Combination of forecasts, Bayesian model averaging

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