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VAR forecasting using Bayesian variable selection

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  • Korobilis, Dimitris

Abstract

This paper develops methods for automatic selection of variables in forecasting Bayesian vector autoregressions (VARs) using the Gibbs sampler. In particular, I provide computationally efficient algorithms for stochastic variable selection in generic (linear and nonlinear) VARs. The performance of the proposed variable selection method is assessed in a small Monte Carlo experiment, and in forecasting 4 macroeconomic series of the UK using time-varying parameters vector autoregressions (TVP-VARs). Restricted models consistently improve upon their unrestricted counterparts in forecasting, showing the merits of variable selection in selecting parsimonious models.

Suggested Citation

  • Korobilis, Dimitris, 2009. "VAR forecasting using Bayesian variable selection," MPRA Paper 21124, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21124
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    References listed on IDEAS

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    More about this item

    Keywords

    Forecasting; variable selection; time-varying parameters; Bayesian;
    All these keywords.

    JEL classification:

    • 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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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