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Var Forecasting Using Bayesian Variable Selection

  • Dimitris Korobilis

This paper develops methods for automatic selection of variables in forecasting Bayesian vector autoregressions (VARs) using the Gibbs sampler. In particular, I provide computationally efficient algorithms for stochastic variable selection in generic (linear and nonlinear) VARs. The performance of the proposed variable selection method is assessed in a small Monte Carlo experiment, and in forecasting 4 macroeconomic series of the UK using time-varying parameters vector autoregressions (TVP-VARs). Restricted models consistently improve upon their unrestricted counterparts in forecasting, showing the merits of variable selection in selecting parsimonious models.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 28 (2013)
Issue (Month): 2 (03)
Pages: 204-230

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Handle: RePEc:wly:japmet:v:28:y:2013:i:2:p:204-230
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