The Blessing Of Dimensionality In Forecasting Real House Price Growth In The Nine Census Divisions Of The Us

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The Blessing Of Dimensionality In Forecasting Real House Price Growth In The Nine Census Divisions Of The Us

Author Info

Sonali Das () (CSIR, Pretoria)
Rangan Gupta () (Department of Economics, University of Pretoria)
Alain Kabundi () (Department of Economics and Econometrics, University of Johannesburg)

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Abstract

This paper analyzes whether a wealth of information contained in 126 monthly series used by large-scale Bayesian Vector Autoregressive (LBVAR) models, as well as Factor Augmented Vector Autoregressive (FAVAR) models, either Bayesian or classical, can prove to be more useful in forecasting real house price growth rate of the nine census divisions of the US, compared to the small-scale VAR models, that merely use the house prices. Using the period of 1991:02 to 2000:12 as the in-sample period and 2001:01 to 2005:06 as the out-of-sample horizon, we compare the forecast performance of the alternative models for one- to twelve–months ahead forecasts. Based on the average Root Mean Squared Error (RMSEs) for one- to twelve–months ahead forecasts, we find that the alternative FAVAR models outperform the other models in eight of the nine census divisions.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200902.

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Length: 21 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:pre:wpaper:200902

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-01-24 (All new papers)
NEP-CBA-2009-01-24 (Central Banking)
NEP-FOR-2009-01-24 (Forecasting)
NEP-MAC-2009-01-24 (Macroeconomics)
NEP-URE-2009-01-24 (Urban & Real Estate Economics)

References listed on IDEAS
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