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Finding good predictors for inflation: a Bayesian model averaging approach

  • Sune Karlsson

    (Stockholm School of Economics, Sweden)

  • Tor Jacobson

    (Sveriges Riksbank, Stockholm, Sweden)

We consider a Bayesian model averaging approach for the purpose of forecasting Swedish consumer price index inflation using a large set of potential indicators, comprising some 80 quarterly time series covering a wide spectrum of Swedish economic activity. The paper demonstrates how to efficiently and systematically evaluate (almost) all possible models that these indicators in combination can give rise to. The results, in terms of out-of-sample performance, suggest that Bayesian model averaging is a useful alternative to other forecasting procedures, in particular recognizing the flexibility by which new information can be incorporated. Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.924
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 23 (2004)
Issue (Month): 7 ()
Pages: 479-496

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Handle: RePEc:jof:jforec:v:23:y:2004:i:7:p:479-496
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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  1. 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.
  2. Carmen Fernández & Eduardo Ley & Mark F. J. Steel, . "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
  3. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
  4. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
  5. Smith, Michael & Kohn, Robert, 2000. "Nonparametric seemingly unrelated regression," Journal of Econometrics, Elsevier, vol. 98(2), pages 257-281, October.
  6. PALM, Franz C. & ZELLNER, Arnold, . "To Combine or not to Combine? Issues of Combining Forecasts," CORE Discussion Papers RP -1027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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