An Embarrassment of Riches: Forecasting Using Large Panels
The increasing availability of data and potential predictor variables poses new challenges to forecasters. The task of formulating a single forecasting model that can extract all the relevant information is becoming increasingly difficult in the face of this abundance of data. The two leading approaches to addressing this "embarrassment of riches" are philosophically distinct. One approach builds forecast models based on summaries of the predictor variables, such as principal components, and the second approach is analogous to forecast combination, where the forecasts from a multitude of possible models are averaged. Using several data sets we compare the performance of the two approaches in the guise of the diffusion index or factor models popularized by Stock and Watson and forecast combination as an application of Bayesian model averaging. We find that none of the methods is uniformly superior and that no method performs better than, or is outperformed by, a simple AR(p) process.
|Date of creation:||31 Mar 2007|
|Contact details of provider:|| Postal: Örebro University School of Business, SE - 701 82 ÖREBRO, Sweden|
Phone: 019-30 30 00
Fax: 019-33 25 46
Web page: http://www.oru.se/Institutioner/Handelshogskolan-vid-Orebro-universitet/
More information through EDIRC
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.:
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2005.
"The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting,"
Journal of the American Statistical Association,
American Statistical Association, vol. 100, pages 830-840, September.
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2002. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," CEPR Discussion Papers 3432, C.E.P.R. Discussion Papers.
- Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2003. "The Generalized Dynamic Factor Model. One-Sided Estimation and Forecasting," LEM Papers Series 2003/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Forni M. & Hallin M., 2003. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," Computing in Economics and Finance 2003 143, Society for Computational Economics.
- Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2005. "The generalised dynamic factor model: one sided estimation and forecasting," ULB Institutional Repository 2013/10129, ULB -- Universite Libre de Bruxelles.
- Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
- Carmen Fernández & Eduardo Ley & Mark F. J. Steel, "undated". "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
- Carmen Fernandez & Eduardo Ley & Mark F.J. Steel, 1998. "Benchmark Priors for Bayesian Model Averaging," Econometrics 9804001, EconWPA, revised 31 Jul 1999.
- Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 26, Edinburgh School of Economics, University of Edinburgh.
- Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 66, Edinburgh School of Economics, University of Edinburgh.
- Gary Koop & Simon Potter, 2004. "Forecasting in dynamic factor models using Bayesian model averaging," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 550-565, December.
- Jean Boivin & Serena Ng, 2005. "Understanding and Comparing Factor-Based Forecasts," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
- Boivin, Jean & Ng, Serena, 2005. "Understanding and Comparing Factor-Based Forecasts," MPRA Paper 836, University Library of Munich, Germany.
- Jean Boivin & Serena Ng, 2005. "Understanding and Comparing Factor-Based Forecasts," NBER Working Papers 11285, National Bureau of Economic Research, Inc.
- Sune Karlsson & Tor Jacobson, 2004. "Finding good predictors for inflation: a Bayesian model averaging approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(7), pages 479-496.
- Jacobson, Tor & Karlsson, Sune, 2002. "Finding Good Predictors for Inflation: A Bayesian Model Averaging Approach," Working Paper Series 138, Sveriges Riksbank (Central Bank of Sweden).
- Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hhs:oruesi:2007_001. 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.