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Bayesian Forecasting with Highly Correlated Predictors

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Author Info

  • Dimitris Korobilis

    (University of Glasgow, UK)

Abstract

This paper considers Bayesian variable selection in regressions with a large number of possibly highly correlated macroeconomic predictors. I show that by acknowledging the correlation structure in the predictors can improve forecasts over existing popular Bayesian variable selection algorithms.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 67_12.

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Date of creation: Nov 2012
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Handle: RePEc:rim:rimwps:67_12

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Keywords: Bayesian semiparametric selection; Dirichlet process prior; correlated predictors; clustered coefficients;

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References

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  1. Dimitris Korobilis, 2013. "Var Forecasting Using Bayesian Variable Selection," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 204-230, 03.
  2. George, Edward I. & Sun, Dongchu & Ni, Shawn, 2008. "Bayesian stochastic search for VAR model restrictions," Journal of Econometrics, Elsevier, vol. 142(1), pages 553-580, January.
  3. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
  4. Carmen Fernandez & E Ley & Mark F J Steel, 2004. "Benchmark priors for Bayesian models averaging," ESE Discussion Papers 66, Edinburgh School of Economics, University of Edinburgh.
  5. Wright, Jonathan H., 2008. "Bayesian Model Averaging and exchange rate forecasts," Journal of Econometrics, Elsevier, vol. 146(2), pages 329-341, October.
  6. Dunson, David B. & Herring, Amy H. & Engel, Stephanie M., 2008. "Bayesian Selection and Clustering of Polymorphisms in Functionally Related Genes," Journal of the American Statistical Association, American Statistical Association, vol. 103, pages 534-546, June.
  7. Gary Koop & Simon Potter, 2004. "Forecasting in dynamic factor models using Bayesian model averaging," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 550-565, December.
  8. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
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Citations

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Cited by:
  1. Nombulelo Gumata, Alain Kabundi and Eliphas Ndou, 2013. "Important Channels of Transmission Monetary Policy Shock in South Africa," Working Papers 375, Economic Research Southern Africa.
  2. Korobilis, Dimitris, 2014. "Data-based priors for vector autoregressions with drifting coefficients," MPRA Paper 53772, University Library of Munich, Germany.
  3. Gary Koop, 2012. "Using VARs and TVP-VARs with Many Macroeconomic Variables," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 4(3), pages 143-167, September.
  4. Dimitris, Korobilis, 2013. "Forecasting with Factor Models: A Bayesian Model Averaging Perspective," MPRA Paper 52724, University Library of Munich, Germany.
  5. Goodness C. Aye & Rangan Gupta, 2013. "Forecasting the US Real Private Residential Fixed Investment Using Large Number of Predictors," Working Papers 201348, University of Pretoria, Department of Economics.

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