Combining exchange rate forecasts: What is the optimal consensus measure?

Abstract

Abstract In this paper a high‐quality disaggregate database is utilized to examine whether individual forecasters produce efficient exchange rate predictions and also if the properties of the forecasts change when they are combined. The paper links a number of themes in the exchange rate literature and examines various methods of forecast combination. It is demonstrated, inter alia , that some forecasters are better than others, but that most are not as good as a naive no‐change prediction. Combining forecasts adds to the accuracy of the predictions, but the gains mainly reflect the removal of systematic and unstable bias.