THE COMBINATION OF FORECASTS USING CHANGING WEIGHTS

This paper considers the combination of forecasts using changing weigh ts derived from switching regression models or from smooth transition regression models. The regimes associated with the switches may not be known to the forecaster and thus need to be estimated. Several approa ches to this problem are considered. In two empirical examples, these time-varying combining procedures produced smaller, in some cases subs tantially smaller, out-of-sample squared forecast errors than those ob tained using the simple linear combining model.