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An outlier robust hierarchical Bayes model for forecasting: the case of Hong Kong

  • William W. Chow

    (Center for Economic Development, Hong Kong University of Science and Technology, Kowloon, Hong Kong)

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    This paper introduces a Bayesian forecasting model that accommodates innovative outliers. The hierarchical specification of prior distributions allows an identification of observations contaminated by these outliers and endogenously determines the hyperparameters of the Minnesota prior. Estimation and prediction are performed using Markov chain Monte Carlo (MCMC) methods. The model forecasts the Hong Kong economy more accurately than the standard V AR and performs in line with other complicated BV AR models. It is also shown that the model is capable of finding most of the outliers in various simulation experiments. Copyright © 2004 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/for.900
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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

    Volume (Year): 23 (2004)
    Issue (Month): 2 ()
    Pages: 99-114

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    Handle: RePEc:jof:jforec:v:23:y:2004:i:2:p:99-114
    DOI: 10.1002/for.900
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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    1. Harald Uhlig, 1997. "Bayesian Vector Autoregressions with Stochastic Volatility," Econometrica, Econometric Society, vol. 65(1), pages 59-74, January.
    2. McNees, Stephen K, 1986. "Forecasting Accuracy of Alternative Techniques: A Comparison of U.S. Macroeconomic Forecasts: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 23, January.
    3. McNees, Stephen K, 1986. "Forecasting Accuracy of Alternative Techniques: A Comparison of U.S. Macroeconomic Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 5-15, January.
    4. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
    5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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