Uncertainty and Heterogeneity in factor models forecasting

Matteo Luciani and Libero Monteforte

No 5, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

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.

Keywords: Factor models; Model uncertainty; Forecast combination; Density forecast. (search for similar items in EconPapers)
JEL-codes: C13 C32 C33 C52 C53 (search for similar items in EconPapers)
Pages: 25
Date: 2012-05
New Economics Papers: this item is included in nep-ecm and nep-for
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Working Paper: Uncertainty and heterogeneity in factor models forecasting (2013)
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