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Finding Good Predictors for Inflation: A Bayesian Model Averaging Approach

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Author Info
Jacobson, Tor () (Research Department, Central Bank of Sweden)
Karlsson, Sune () (Stockholm School of Economics)

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Abstract

We consider a Bayesian Model Averaging approach for the purpose of forecasting Swedish consumer price index inflation using a large set of potential indicators, comprising some 80 quarterly time series covering a wide spectrum of Swedish economic activity. The paper demonstrates how to efficiently and systematically evaluate (almost) all possible models that these indicators in combination can give rise to. The results, in terms of out-of-sample-performance, suggest that Bayesian Model Averaging is a useful alternative to other forecasting procedures, in particular recognizing the flexibility by which new information can be incorporated.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 138.

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Length: 24 pages
Date of creation: 01 Aug 2002
Date of revision:
Publication status: Published in Journal of Forecasting, 2004, pages 479-496.
Handle: RePEc:hhs:rbnkwp:0138

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Related research
Keywords: Variable selection; Markov chain Monte Carlo; Forecast;

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
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.:
  1. Palm, F. & Zellner, A., 1991. "To combine or not to combine? issues of combining forecasts," CORE Discussion Papers 1991022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. 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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  3. Smith, Michael & Kohn, Robert, 2000. "Nonparametric seemingly unrelated regression," Journal of Econometrics, Elsevier, vol. 98(2), pages 257-281, October. [Downloadable!] (restricted)
    Other versions:
  4. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June. [Downloadable!] (restricted)
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  5. 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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  6. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583. [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. Andersson, Michael K & Karlsson, Sune, 2007. "Bayesian Forecast Combination for VAR Models," Working Papers 2007:13, Örebro University, Swedish Business School. [Downloadable!]
    Other versions:
  2. Chun Liu & John M. Maheu, 2009. "Forecasting realized volatility: a Bayesian model-averaging approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(5), pages 709-733. [Downloadable!]
    Other versions:
  3. Eklund, Jana & Karlsson, Sune, 2007. "An Embarrassment of Riches: Forecasting Using Large Panels," Working Papers 2007:1, Örebro University, Swedish Business School. [Downloadable!]
    Other versions:
  4. 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!]
  5. Timmermann, Allan G, 2005. "Forecast Combinations," CEPR Discussion Papers 5361, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. John W. Galbraith & Greg Tkacz, 2007. "How Far Can Forecasting Models Forecast? Forecast Content Horizons for Some Important Macroeconomic Variables," Working Papers 07-1, Bank of Canada. [Downloadable!]
  7. Thomas Brenner & Claudia Werker, 2007. "A Taxonomy of Inference in Simulation Models," Computational Economics, Springer, vol. 30(3), pages 227-244, October. [Downloadable!] (restricted)
  8. Todd E. Clark & Michael W. McCracken, 2008. "Combining forecasts from nested models," Working Papers 2008-037, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  9. Eklund, Jana & Karlsson, Sune, 2005. "Forecast Combination and Model Averaging using Predictive Measures," Working Paper Series 191, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  10. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers 411, U.S. Bureau of Labor Statistics. [Downloadable!]
  11. Charalambos G. Tsangarides & Alin Mirestean & Huigang Chen, 2009. "Limited Information Bayesian Model Averaging for Dynamic Panels with Short Time Periods," IMF Working Papers 09/74, International Monetary Fund. [Downloadable!]
  12. Eklund, Jana & Karlsson, Sune, 2007. "Computational Efficiency in Bayesian Model and Variable Selection," Working Papers 2007:4, Örebro University, Swedish Business School. [Downloadable!]
    Other versions:
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