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Forecasting mortality rates: multivariate or univariate models?

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  • Lingbing Feng

    (Jiangxi University of Finance and Economics)

  • Yanlin Shi

    (Macquarie University)

Abstract

It is well known that accurate forecasts of mortality rates are essential to various demographic research topics, such as population projections and the pricing of insurance products such as pensions and annuities. In this study, we argue that including the lagged rates of neighbouring ages cannot further improve mortality forecasting after allowing for autocorrelations. This is because the sample cross-correlation function cannot exhibit meaningful and statistically significant correlations. In other words, rates of neighbouring ages are usually not leading indicators in mortality forecasting. Therefore, multivariate stochastic mortality models like the classic Lee–Carter may not necessarily lead to more accurate forecasts, compared with sophisticated univariate models. Using Australian mortality data, simulation and empirical studies employing the Lee–Carter, Functional Data, Vector Autoregression, Autoregression-Autoregressive Conditional Heteroskedasticity and exponential smoothing (ETS) state space models are performed. Results suggest that ETS models consistently outperform the others in terms of forecasting accuracy. This conclusion holds for both female and male mortality data with different empirical features across various forecasting error measurements. Hence, ETS can be a widely useful tool to model and forecast mortality rates in actuarial practice.

Suggested Citation

  • Lingbing Feng & Yanlin Shi, 2018. "Forecasting mortality rates: multivariate or univariate models?," Journal of Population Research, Springer, vol. 35(3), pages 289-318, September.
    • Handle: RePEc:spr:joprea:v:35:y:2018:i:3:d:10.1007_s12546-018-9205-z
    DOI: 10.1007/s12546-018-9205-z
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    Cited by:

    1. Thilini Dulanjali Kularatne & Jackie Li & Yanlin Shi, 2022. "Forecasting Mortality Rates with a Two-Step LASSO Based Vector Autoregressive Model," Risks, MDPI, vol. 10(11), pages 1-23, November.
    2. Hong Li & Yanlin Shi, 2021. "Mortality Forecasting with an Age-Coherent Sparse VAR Model," Risks, MDPI, vol. 9(2), pages 1-19, February.
    3. Feng, Lingbing & Shi, Yanlin & Chang, Le, 2021. "Forecasting mortality with a hyperbolic spatial temporal VAR model," International Journal of Forecasting, Elsevier, vol. 37(1), pages 255-273.
    4. Yanlin Shi, 2021. "Forecasting mortality rates with the adaptive spatial temporal autoregressive model," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(3), pages 528-546, April.
    5. Yanlin Shi & Sixian Tang & Jackie Li, 2020. "A Two-Population Extension of the Exponential Smoothing State Space Model with a Smoothing Penalisation Scheme," Risks, MDPI, vol. 8(3), pages 1-18, June.

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