Bayesian model selection and prediction with empirical applications
This paper builds on some recent work by the author and Werner Ploberger (1991, 1994) on the development of "Bayes models" for time series and on the authors' model selection criterion "PIC." The PIC criterion is used in this paper to determine the lag order, the trend degree, and the presence or absence of a unit root in an autoregression with deterministic trend. A new forecast encompassing test for Bayes models is developed which allows one Bayes model to be compared with another on the basis of their respective forecasting performance. The paper reports an extended empirical application of the methodology to the Nelson-Plosser (1982)/Schotman-van Dijk (1991) data. It is shown that parsimonious, evolving-format Bayes models forecast-encompass fixed Bayes models of the "AR(3) + linear trend" variety for most of these series. In some cases, the forecast performance of the parsimonious Bayes models is substantially superior. The results cast some doubts on the value of working with fixed format time series models in empirical research and demonstrate the practical advantages of evolving-format models. The paper makes a new suggestion for modelling interest rates in terms of reciprocals of levels rather than levels (which display more volatility) and shows that the best data-determined model for this transformed series is a martingale. Keywords: Bayes model, Bayes measure, BIC, forecast, forecast-encompass, model selection, PIC, unit root
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Schotman, Peter C & van Dijk, Herman K, 1991.
"On Bayesian Routes to Unit Roots,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 6(4), pages 387-401, Oct.-Dec..
- Peter C. Schotman & Herman K. van Dijk, 1991. "On Bayesian routes to unit roots," Discussion Paper / Institute for Empirical Macroeconomics 43, Federal Reserve Bank of Minneapolis.
- Min, C.K. & Zellner, A., 1992.
""Bayesian and Non-Bayesian Methods for Combining Models and Forecasts with Applications to Forecasting International Growth Rates","
90-92-23, California Irvine - School of Social Sciences.
- 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.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Florens, J.P. & Mouchart, M. & Larribeau-Nori, S., 1992.
"Bayesian Encompassing Tests of Unit Root Hypothesis,"
92.274, Toulouse - GREMAQ.
- Florens, Jean-Pierre & Larribeau, Sophie & Mouchart, Michel, 1994. "Bayesian Encompassing Tests of a Unit Root Hypothesis," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 747-763, August.
- Steven N. Durlauf & Peter C.B. Phillips, 1986.
"Trends Versus Random Walks in Time Series Analysis,"
Cowles Foundation Discussion Papers
788, Cowles Foundation for Research in Economics, Yale University.
- Durlauf, Steven N & Phillips, Peter C B, 1988. "Trends versus Random Walks in Time Series Analysis," Econometrica, Econometric Society, vol. 56(6), pages 1333-54, November.
- Phillips, Peter C.B. & Ploberger, Werner, 1994.
"Posterior Odds Testing for a Unit Root with Data-Based Model Selection,"
Cambridge University Press, vol. 10(3-4), pages 774-808, August.
- Peter C.B. Phillips & Werner Ploberger, 1992. "Posterior Odds Testing for a Unit Root with Data-Based Model Selection," Cowles Foundation Discussion Papers 1017, Cowles Foundation for Research in Economics, Yale University.
- Phillips, Peter C.B., 1994.
"Spurious Regression in Forecast-Encompassing Tests,"
Cambridge University Press, vol. 10(3-4), pages 818-819, August.
- Phillips, Peter C.B., 1995. "Spurious Regression in Forecast-Encompassing Tests," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1188-1190, October.
- Phillips, P.C.B., 1986.
"Understanding spurious regressions in econometrics,"
Journal of Econometrics,
Elsevier, vol. 33(3), pages 311-340, December.
- Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
- DeJong, David N. & Whiteman, Charles H., 1991. "Reconsidering 'trends and random walks in macroeconomic time series'," Journal of Monetary Economics, Elsevier, vol. 28(2), pages 221-254, October.
- Peter C.B. Phillips & Werner Ploberger, 1991. "Time Series Modelling with a Bayesian Frame of Reference: 1. Concepts and Illustrations," Cowles Foundation Discussion Papers 980, Cowles Foundation for Research in Economics, Yale University.
When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:69:y:1995:i:1:p:289-331. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.