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Forecasting Using Predictive Likelihood Model Averaging

  • George Kapetanios

    ()

    (Queen Mary, University of London)

  • Vincent Labhard

    ()

    (Bank of England)

  • Simon Price

    ()

    (Bank of England and City University)

Recently, there has been increasing interest in forecasting methods that utilise large datasets. We explore the possibility of forecasting with model averaging using the out-of-sample forecasting performance of various models in a frequentist setting, using the predictive likelihood. We apply our method to forecasting UK inflation and find that the new method performs well; in some respects it outperforms other averaging methods.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp567.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 567.

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Date of creation: Sep 2006
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Handle: RePEc:qmw:qmwecw:wp567
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  1. Kapetanios, G. & Labhard, V. & Price, S., 2007. "Forecasting using Bayesian and information theoretic model averaging: an application to UK inflation," Working Papers 07/15, Department of Economics, City University London.
  2. Gary Koop & Simon Potter, 2003. "Forecasting in large macroeconomic panels using Bayesian Model Averaging," Staff Reports 163, Federal Reserve Bank of New York.
  3. Jana Eklund & Sune Karlsson, 2007. "Forecast Combination and Model Averaging Using Predictive Measures," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 329-363.
  4. Sin, Chor-Yiu & White, Halbert, 1996. "Information criteria for selecting possibly misspecified parametric models," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 207-225.
  5. Hamparsum Bozdogan, 1987. "Model selection and Akaike's Information Criterion (AIC): The general theory and its analytical extensions," Psychometrika, Springer, vol. 52(3), pages 345-370, September.
  6. Jonathan H. Wright, 2003. "Bayesian Model Averaging and exchange rate forecasts," International Finance Discussion Papers 779, Board of Governors of the Federal Reserve System (U.S.).
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