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Uncertainty and heterogeneity in factor models forecasting

Author

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  • Matteo Luciani

    (Universit� libre de Bruxelles)

  • Libero Monteforte

    (Bank of Italy)

Abstract

In this paper, we exploit the heterogeneity in the forecasts obtained by estimating different factor models to measure forecast uncertainty. Our approach is simple and intuitive. It consists first in selecting all the models that outperform some benchmark model, and then in constructing an empirical distribution of the forecasts produced by them. We interpret this distribution as a measure of uncertainty. We illustrate our methodology by means of a forecasting exercise using a large database of Italian data from 1982 to 2009.

Suggested Citation

  • Matteo Luciani & Libero Monteforte, 2013. "Uncertainty and heterogeneity in factor models forecasting," Temi di discussione (Economic working papers) 930, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_930_13
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    References listed on IDEAS

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    Cited by:

    1. M. Caivano & A. Harvey, 2013. "Two EGARCH models and one fat tail," Cambridge Working Papers in Economics 1326, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    factor models; model uncertainty; forecast combination; density forecast;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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