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BACE and BMA Variable Selection and Forecasting for UK Money Demand and Inflation with Gretl

Author

Listed:
  • Marcin Błażejowski

    (Faculty of Finance and Management, WSB University in Torun, ul. Młodzieżowa 31a, 87-100 Toruń, Poland)

  • Jacek Kwiatkowski

    (Faculty of Economic Sciences and Management, Nicolaus Copernicus University, ul. Gagarina 13a, 87-100 Toruń, Poland)

  • Paweł Kufel

    (Faculty of Finance and Management, WSB University in Torun, ul. Młodzieżowa 31a, 87-100 Toruń, Poland)

Abstract

In this paper, we apply Bayesian averaging of classical estimates (BACE) and Bayesian model averaging (BMA) as an automatic modeling procedures for two well-known macroeconometric models: UK demand for narrow money and long-term inflation. Empirical results verify the correctness of BACE and BMA selection and exhibit similar or better forecasting performance compared with a non-pooling approach. As a benchmark, we use Autometrics—an algorithm for automatic model selection. Our study is implemented in the easy-to-use gretl packages, which support parallel processing, automates numerical calculations, and allows for efficient computations.

Suggested Citation

  • Marcin Błażejowski & Jacek Kwiatkowski & Paweł Kufel, 2020. "BACE and BMA Variable Selection and Forecasting for UK Money Demand and Inflation with Gretl," Econometrics, MDPI, vol. 8(2), pages 1-29, May.
    • Handle: RePEc:gam:jecnmx:v:8:y:2020:i:2:p:21-:d:361756
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    References listed on IDEAS

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