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BACE and BMA Variable Selection and Forecasting for UK Money Demand and Inflation with Gretl

Marcin Błażejowski, Jacek Kwiatkowski () and Paweł Kufel ()
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Jacek Kwiatkowski: Faculty of Economic Sciences and Management, Nicolaus Copernicus University, ul. Gagarina 13a, 87-100 Toruń, Poland
Paweł Kufel: Faculty of Finance and Management, WSB University in Torun, ul. Młodzieżowa 31a, 87-100 Toruń, Poland

Econometrics, 2020, vol. 8, issue 2, 1-29

Abstract: In this paper, we apply Bayesian averaging of classical estimates (BACE) and Bayesian model averaging (BMA) as an automatic modeling procedures for two well-known macroeconometric models: UK demand for narrow money and long-term inflation. Empirical results verify the correctness of BACE and BMA selection and exhibit similar or better forecasting performance compared with a non-pooling approach. As a benchmark, we use Autometrics—an algorithm for automatic model selection. Our study is implemented in the easy-to-use gretl packages, which support parallel processing, automates numerical calculations, and allows for efficient computations.

Keywords: model uncertainty; Bayesian pooling; MPI; model averaging (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2020
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