Rangan Gupta () (Department of Economics, University of Pretoria) Alain Kabundi () (Department of Economics and Econometrics, University of Johannesburg) Stephen M. Miller () (Department of Economics, University of Nevada, Las Vegas)
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We implement several Bayesian and classical models to forecast housing prices in 20 US states. In addition to standard vector-autoregressive (VAR) and Bayesian vector autoregressive (BVAR) models, we also include the information content of 308 additional quarterly series in some models. Several approaches exist for incorporating information from a large number of series. We consider two approaches – extracting common factors (principle components) in a Factor-Augmented Vector Autoregressive (FAVAR) or Factor-Augmented Bayesian Vector Autoregressive (FABVAR) models or Bayesian shrinkage in a large-scale Bayesian Vector Autoregressive (LBVAR) models. In addition, we also introduce spatial or causality priors to augment the forecasting models. Using the period of 1976:Q1 to 1994:Q4 as the in-sample period and 1995:Q1 to 2003:Q4 as the out-of-sample horizon, we compare the forecast performance of the alternative models. Based on the average root mean squared error (RMSE) for the one-, two-, three-, and four–quarters-ahead forecasts, we find that one of the factor-augmented models generally outperform the large-scale models in the 20 US states examined in this paper.
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Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number
0916.
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.:
James H. Stock & Mark W. Watson, 1999.
"Forecasting Inflation,"
NBER Working Papers
7023, National Bureau of Economic Research, Inc.
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