Forecasting with Dynamic Models using Shrinkage-based Estimation

Andrea Carriero (), George Kapetanios () and Massimiliano Marcellino
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George Kapetanios: Queen Mary, University of London, http://www.econ.qmul.ac.uk/staff/kapetanios/

No 635, Working Papers from Queen Mary, University of London, Department of Economics

Abstract: The paper provides a proof of consistency of the ridge estimator for regressions where the number of regressors tends to infinity. Such result is obtained without assuming a factor structure. A Monte Carlo study suggests that shrinkage autoregressive models can lead to very substantial advantages compared to standard autoregressive models. An empirical application focusing on forecasting inflation and GDP growth in a panel of countries confirms this finding.

Keywords: Shrinkage; Forecasting (search for similar items in EconPapers)
JEL-codes: C13 C22 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-for
Date: 2008-10

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