Time-varying model averaging

Yuying Sun, Yongmiao Hong, Tae Hwy Lee, Shouyang Wang and Xinyu Zhang

Journal of Econometrics, 2021, vol. 222, issue 2, 974-992

Abstract: Structural changes often occur in economics and finance due to changes in preferences, technologies, institutional arrangements, policies, crises, etc. Improving forecast accuracy of economic time series with structural changes is a long-standing problem. Model averaging aims at providing an insurance against selecting a poor forecast model. All existing model averaging approaches in the literature are designed with constant (non-time-varying) combination weights. Little attention has been paid to time-varying model averaging, which is more realistic in economics under structural changes. This paper proposes a novel model averaging estimator which selects optimal time-varying combination weights by minimizing a local jackknife criterion. It is shown that the proposed time-varying jackknife model averaging (TVJMA) estimator is asymptotically optimal in the sense of achieving the lowest possible local squared error loss in a class of time-varying model averaging estimators. Under a set of regularity assumptions, the TVJMA estimator is Th-consistent. A simulation study and an empirical application highlight the merits of the proposed TVJMA estimator relative to a variety of popular estimators with constant model averaging weights and model selection.

Keywords: Asymptotic optimality; Forecast combination; Local stationarity; Model averaging; Structural change; Time-varying model averaging (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407620303067
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Time-varying Model Averaging (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:222:y:2021:i:2:p:974-992

DOI: 10.1016/j.jeconom.2020.02.006

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().