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Mixed frequency models: Bayesian approaches to estimation and prediction

  • Rodriguez, Abel
  • Puggioni, Gavino
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    We describe Bayesian models for economic and financial time series that use regressors sampled at higher frequencies than the outcome of interest. The models are developed within the framework of dynamic linear models, which provides a high level of flexibility and allows direct interpretation of the results. The problem of the collinearity of intraperiod observations is solved using model selection and model averaging approaches. Bayesian approaches to model selection automatically adjust for multiple comparisons, while predictions based on model averaging allow us to account for both model and parameter uncertainty when predicting future observations. A novel aspect of the models presented here is the introduction of new formulations for the prior distribution on the model space that allow us to favor sparse models where the significant coefficients cluster on adjacent lags of the high frequency predictor. We illustrate our approach by predicting the gross national product of the United States using the term structure of interest rates.

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    File URL: http://www.sciencedirect.com/science/article/B6V92-4YFDW05-1/2/04fe4703e310f359900644e5f441c0ee
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    Article provided by Elsevier in its journal International Journal of Forecasting.

    Volume (Year): 26 (2010)
    Issue (Month): 2 (April)
    Pages: 293-311

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    Handle: RePEc:eee:intfor:v:26:y::i:2:p:293-311
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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    1. Julia Campos & David F. Hendry & Hans-Martin Krolzig, 2003. "Consistent Model Selection by an Automatic "Gets" Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 803-819, December.
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    5. Eric Ghysels & Jonathan H. Wright, 2006. "Forecasting professional forecasters," Finance and Economics Discussion Series 2006-10, Board of Governors of the Federal Reserve System (U.S.).
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    7. Ghysels, Eric & Santa-Clara, Pedro & Valkanov, Rossen, 2006. "Predicting volatility: getting the most out of return data sampled at different frequencies," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 59-95.
    8. Harald Uhlig, 1997. "Bayesian Vector Autoregressions with Stochastic Volatility," Econometrica, Econometric Society, vol. 65(1), pages 59-74, January.
    9. Clements, Michael P & Galvão, Ana Beatriz, 2008. "Macroeconomic Forecasting With Mixed-Frequency Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 546-554.
    10. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-63, September.
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