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Real Time Econometrics

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  • M. Hashem Pesaran
  • Allan Timmermann

Abstract

This paper considers the problems facing decision-makers using econometric models in real time. It identifies the key stages involved and highlights the role of automated systems in reducing the effect of data snooping. It sets out many choices that researchers face in construction of automated systems and discusses some of the possible ways advanced in the literature for dealing with them. The role of feedbacks from the decision-maker’s actions to the data generating process is also discussed and highlighted through an example.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-04/cesifo1_wp1169.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1169.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1169

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Keywords: specification search; data snooping; recursive/sequential modelling; automated model selection;

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References

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  1. Garrat, A. & Lee, K. & Pesaran, M.H. & Shin, Y., 2000. "Forecast Uncertainties in Macroeconometric Modelling: An Application to the UK Economy," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0004, Faculty of Economics, University of Cambridge.
  2. Marco Aiolfi & Carlo Ambrogio Favero, . "Model Uncertainty, Thick Modelling and the predictability of Stock Returns," Working Papers 221, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers, Federal Reserve Bank of Minneapolis 274, Federal Reserve Bank of Minneapolis.
  4. Granger, Clive W.J. & Hendry, David F., 2005. "A Dialogue Concerning A New Instrument For Econometric Modeling," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 21(01), pages 278-297, February.
  5. Granger, Clive W. J. & Jeon, Yongil, 2004. "Thick modeling," Economic Modelling, Elsevier, Elsevier, vol. 21(2), pages 323-343, March.
  6. Egginton, Donald & Andreas Pick & Shaun P. Vahey, 2002. "Keep It Real!: A Real-time UK Macro Data Set," Royal Economic Society Annual Conference 2002, Royal Economic Society 69, Royal Economic Society.
  7. Carmen Fernandez & E Ley & Mark F J Steel, 2004. "Benchmark priors for Bayesian models averaging," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 66, Edinburgh School of Economics, University of Edinburgh.
  8. M. Hashem Pesaran & Allan Timmermann, 2002. "Market timing and return prediction under model instability," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 24932, London School of Economics and Political Science, LSE Library.
  9. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
  10. Peter C.B. Phillips, 2003. "Laws and Limits of Econometrics," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1397, Cowles Foundation for Research in Economics, Yale University.
  11. Coe, P.J. & Pesaran, M.H. & Vahey, S.P., 2003. "Scope for Cost Minimization in Public Debt Management: the Case of the UK," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0338, Faculty of Economics, University of Cambridge.
  12. Peter C.B. Phillips & Werner Ploberger, 1992. "Posterior Odds Testing for a Unit Root with Data-Based Model Selection," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1017, Cowles Foundation for Research in Economics, Yale University.
  13. repec:cup:etheor:v:10:y:1994:i:3-4:p:774-808 is not listed on IDEAS
  14. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(2), pages 147-62, April.
  15. Allan Timmermann & M. Hashem Pesaran, 1999. "A Recursive Modelling Approach to Predicting UK Stock Returns," FMG Discussion Papers, Financial Markets Group dp322, Financial Markets Group.
  16. Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics, EconWPA 0110002, EconWPA.
  17. Carmen Fernández & Eduardo Ley & Mark F. J. Steel, . "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
  18. Sullivan, Ryan & Timmermann, Allan & White, Halbert, 2001. "Dangers of data mining: The case of calendar effects in stock returns," Journal of Econometrics, Elsevier, Elsevier, vol. 105(1), pages 249-286, November.
  19. Granger, C.W.J. & Pesaran, M. H., 1999. "Economic and Statistical Measures of Forecast Accuracy," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9910, Faculty of Economics, University of Cambridge.
  20. Granger, C.W.J. & Pesaran, H., 1996. "A Decision_Theoretic Approach to Forecast Evaluation," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9618, Faculty of Economics, University of Cambridge.
  21. Aaron F. Schiff & Peter C.B. Phillips, 2000. "Forecasting New Zealand's Real GDP," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1278, Cowles Foundation for Research in Economics, Yale University.
  22. Peter C.B. Phillips, 1995. "Automated Forecasts of Asia-Pacific Economic Activity," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1103, Cowles Foundation for Research in Economics, Yale University.
  23. Phillips, Peter C B, 1996. "Econometric Model Determination," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 763-812, July.
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