The Predictive Space, or, If x predicts y, what does y tell us about x?
A predictive regression for y(t) and a time series representation of the predictors, x(t), together imply a univariate reduced form for y(t). In this paper we work backwards, and ask: if we observe y(t), what do its univariate properties tell us about any x(t) in the "predictive space" consistent with those properties? We provide a mathematical characterisation of the predictive space and certain of its derived properties. We derive both a lower and an upper bound for the R^2 for any predictive regression for y(t). We also show that for some empirically relevant univariate properties of y(t), the entire predictive space can be very tightly constrained. We illustrate using Stock and Watson's (2007) univariate representation of inflation.
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Malet Street, London WC1E 7HX, UK|
Phone: 44-20- 76316429
Fax: 44-20- 76316416
Web page: http://www.ems.bbk.ac.uk/
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Y. Campbell & N. Gregory Mankiw, 1986.
"Are Output Fluctuations Transitory?,"
NBER Working Papers
1916, National Bureau of Economic Research, Inc.
- Jean Boivin & Marc Giannoni, 2006.
"DSGE Models in a Data-Rich Environment,"
NBER Technical Working Papers
0332, National Bureau of Economic Research, Inc.
- Boivin, J. & Giannoni, M., 2007. "DSGE Models in a Data-Rich Environment," Working papers 162, Banque de France.
- Marc P. Giannoni & Jean Boivin, 2005. "DSGE Models in a Data-Rich Environment," Computing in Economics and Finance 2005 431, Society for Computational Economics.
- Jean Boivin & Marc Giannoni, 2006. "DSGE Models in a Data-Rich Environment," NBER Working Papers 12772, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:bbk:bbkefp:1210. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.