Sparse Bayesian Variable Selection in Probit Model for Forecasting U.S. Recessions Using a Large Set of Predictors

Yang Aijun (), Xiang Ju, Hongqiang Yang () and Lin Jinguan
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Yang Aijun: Nanjing Forestry University
Xiang Ju: South University of Science and Technology of China
Lin Jinguan: Nanjing Audit University

Computational Economics, 2018, vol. 51, issue 4, No 17, 1123-1138

Abstract: Abstract In this paper, a large set of macroeconomic and financial predictors is used to forecast U.S. recession periods. We propose a sparse Bayesian variable selection in probit model for predicting U.S. recessions. The correlation prior is assigned for the binary vector to distinguish models with the same size, and the sparse prior is specified for the coefficient parameters for the purpose of predicting accurately using fewer parameters. In terms of the quadratic probability score and the log probability score, we demonstrate that the proposed method performs better than other three methods.

Keywords: Sparse Bayesian variable selection; Correlation prior; Probit model; Forecasting U.S. recessions (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10614-017-9660-1

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