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Uncertainty and Heterogeneity in factor models forecasting

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  • Matteo Luciani
  • Libero Monteforte

Abstract

In this paper we propose to exploit the heterogeneity of forecasts produced by different model specifications to measure forecast uncertainty. Our approach is simple and intuitive. It consists in selecting all the models that outperform some benchmark model, and then to construct an empirical distribution of the forecasts produced by these models. We interpret this distribution as a measure of uncertainty. We perform a pseudo real-time forecasting exercise on a large database of Italian data from 1982 to 2009, showing case studies of our measure of uncertainty.

Suggested Citation

  • Matteo Luciani & Libero Monteforte, 2012. "Uncertainty and Heterogeneity in factor models forecasting," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    • Handle: RePEc:itt:wpaper:wp2012-5
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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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