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Working Paper

Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts

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This paper shows entropic tilting to be a flexible and powerful tool for combining medium-term forecasts from BVARs with short-term forecasts from other sources (nowcasts from either surveys or other models). Tilting systematically improves the accuracy of both point and density forecasts, and tilting the BVAR forecasts based on nowcast means and variances yields slightly greater gains in density accuracy than does just tilting based on the nowcast means. Hence entropic tilting can offer—more so for persistent variables than not-persistent variables—some benefits for accurately estimating the uncertainty of multi-step forecasts that incorporate nowcast information.
Topics
Econometrics modeling and forecasting
12.29.2014ISSN 2573-7953 WP 14-39DOI 10.26509/frbc-wp-201439
Keywords forecasting, prediction, Bayesian analysis
JEL Classification Codes E17, C11, C53

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Krueger, Fabian, Todd E. Clark, and Francesco Ravazzolo. 2014. “Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts.” Federal Reserve Bank of Cleveland, Working Paper No. 14-39. https://doi.org/10.26509/frbc-wp-201439