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Forecasting using Bayesian and information theoretic model averaging: an application to UK in flation

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Author Info
George Kapetanios () (Queen Mary University of London)
Vincent Labhard () (Bank of England)
Simon Price () (Department of Economics, City University, London)

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Abstract

Model averaging often improves forecast accuracy over individual forecasts. It may also be seen as a means of forecasting in data-rich environments. Bayesian model averaging methods have been widely advocated, but a neglected frequentist approach is to use information theoretic based weights. We consider the use of information-theoretic model averaging in forecasting UK inflation, with a large data set, and find that it can be a powerful alternative to Bayesian averaging schemes.

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Paper provided by Department of Economics, City University, London in its series City University Economics Discussion Papers with number 07/15.

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Length: 26 pages
Date of creation: Nov 2007
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Handle: RePEc:cty:dpaper:0715

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Related research
Keywords: forecasting; inflation; Bayesian model averaging; Akaike criteria; forecast combining.;

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Gary Koop & Simon Potter, 2003. "Forecasting in Large Macroeconomic Panels using Bayesian Model Averaging," Discussion Papers in Economics 04/16, Department of Economics, University of Leicester. [Downloadable!]
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  4. Jonathan H. Wright, 2003. "Forecasting U.S. inflation by Bayesian Model Averaging," International Finance Discussion Papers 780, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  5. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February. [Downloadable!] (restricted)
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  6. Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, Elsevier. [Downloadable!] (restricted)
  7. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
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  8. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November. [Downloadable!] (restricted)
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  9. Min, Chung-ki & Zellner, Arnold, 1993. "Bayesian and non-Bayesian methods for combining models and forecasts with applications to forecasting international growth rates," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 89-118, March. [Downloadable!] (restricted)
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  10. James H. Stock & Mark W. Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
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  11. Corradi, Valentina & Swanson, Norman R., 2006. "Predictive Density Evaluation," Handbook of Economic Forecasting, Elsevier. [Downloadable!] (restricted)
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  12. Jonathan H. Wright, 2003. "Bayesian Model Averaging and exchange rate forecasts," International Finance Discussion Papers 779, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  13. Ashley, Richard, 1998. "A new technique for postsample model selection and validation," Journal of Economic Dynamics and Control, Elsevier, vol. 22(5), pages 647-665, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Todd E. Clark & Michael W. McCracken, 2008. "Averaging forecasts from VARs with uncertain instabilities," Working Papers 2008-030, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  2. Katja Drechsel & Laurent Maurin, 2008. "Flow on conjunctural information and forecast of euro area economic activity," Working Paper Series 925, European Central Bank. [Downloadable!]
  3. Scharnagl, Michael & Schumacher, Christian, 2007. "Reconsidering the role of monetary indicators for euro area inflation from a Bayesian perspective using group inclusion probabilities," Discussion Paper Series 1: Economic Studies 2007,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. George Kapetanios & Vincent Labhard & Simon Price, . "Forecast combination and the Bank of England’s suite of statistical forecasting models," Bank of England working papers 323, Bank of England. [Downloadable!]
    Other versions:
  5. David Jamieson Bolder & Yuliya Romanyuk, 2008. "Combining Canadian Interest-Rate Forecasts," Working Papers 08-34, Bank of Canada. [Downloadable!]
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