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VAR forecasting using Bayesian variable selection

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  • KOROBILIS, Dimitris

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

Abstract

This paper develops methods for automatic selection of variables in Bayesian vector autoregressions (VARs) using the Gibbs sampler. In particular, I provide computationally efficient algorithms for stochastic variable selection in generic linear and nonlinear models, as well as models of large dimensions. The performance of the proposed variable selection method is assessed in forecasting three major macroeconomic time series of the UK economy. Databased restrictions of VAR coefficients can help improve upon their unrestricted counterparts in forecasting, and in many cases they compare favorably to shrinkage estimators.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011022.

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Date of creation: 01 May 2011
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Handle: RePEc:cor:louvco:2011022

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Keywords: forecasting; variable selection; time-varying parameters;

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References

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  5. KOROBILIS, Dimitris, 2011. "Hierarchical shrinkage priors for dynamic regressions with many predictors," CORE Discussion Papers 2011021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Luc Bauwens & Gary Koop & Dimitris Korobilis & Jeroen Rombouts, 2011. "A comparison of Forecasting Procedures for Macroeconomic Series: The Contribution of Structural Break Models," Working Papers 1113, University of Strathclyde Business School, Department of Economics.
  7. Anthony Garratt & Gary Koop & Emi Mise & Shaun P Vahey, 2007. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Birkbeck Working Papers in Economics and Finance 0714, Birkbeck, Department of Economics, Mathematics & Statistics.
  8. Joshua Chan & Gary Koop & Roberto Leon-Gonzalez & Rodney Strachan, 2011. "Time Varying Dimension Models," Working Papers 1116, University of Strathclyde Business School, Department of Economics.
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