Bayesian Forecast Combination for VAR Models
We consider forecast combination and, indirectly, model selection for VAR models when there is uncertainty about which variables to include in the model in addition to the forecast variables. The key di erence from traditional Bayesian variable selection is that we also allow for uncertainty regarding which endogenous variables to include in the model. That is, all models include the forecast variables, but may otherwise have di ering sets of endogenous variables. This is a dicult problem to tackle with a traditional Bayesian approach. Our solution is to focus on the forecasting performance for the variables of interest and we construct model weights from the predictive likelihood of the forecast variables. The procedure is evaluated in a small simulation study and found to perform competitively in applications to real world data.
|Date of creation:||13 Dec 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/
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- Jana Eklund & Sune Karlsson, 2007.
"Forecast Combination and Model Averaging Using Predictive Measures,"
Taylor & Francis Journals, vol. 26(2-4), pages 329-363.
- Eklund, Jana & Karlsson, Sune, 2005. "Forecast Combination and Model Averaging using Predictive Measures," Working Paper Series 191, Sveriges Riksbank (Central Bank of Sweden).
- Eklund, Jana & Karlsson, Sune, 2005. "Forecast Combination and Model Averaging Using Predictive Measures," CEPR Discussion Papers 5268, C.E.P.R. Discussion Papers.
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- Kadiyala, K. Rao & Karlsson, Sune, 1994. "Numerical Aspects of Bayesian VAR-modeling," SSE/EFI Working Paper Series in Economics and Finance 12, Stockholm School of Economics.
- 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.
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- Min, Chung-ki & Zellner, Arnold, 1993. "Bayesian and non-Bayesian methods for combining models and forecasts with applications to forecasting international growth rates," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 89-118, March.
- Min, C.K. & Zellner, A., 1992. ""Bayesian and Non-Bayesian Methods for Combining Models and Forecasts with Applications to Forecasting International Growth Rates"," Papers 90-92-23, California Irvine - School of Social Sciences.
- 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.
- 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.
- Kapetanios, George & Labhard, Vincent & Price, Simon, 2008. "Forecast combination and the Bank of England's suite of statistical forecasting models," Economic Modelling, Elsevier, vol. 25(4), pages 772-792, July.
- George Kapetanios & Vincent Labhard & Simon Price, 2007. "Forecast combination and the Bank of England’s suite of statistical forecasting models," Bank of England working papers 323, Bank of England.
- John G. Galbraith & Greg Tkacz, 2006. "How Far Can We Forecast? Forecast Content Horizons For Some Important Macroeconomic Time Series," Departmental Working Papers 2006-13, McGill University, Department of Economics.
- 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).
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