Bayesian forecast combination for VAR models

Michael K. Andersson and Sune Karlsson ()

A chapter in Bayesian Econometrics, 2008, pp 501-524 from Emerald Group Publishing Limited

Abstract: We consider forecast combination and, indirectly, model selection for VAR models when there is uncertainty about which variables to include in the model in addition to the forecast variables. The key difference from traditional Bayesian variable selection is that we also allow for uncertainty regarding which endogenous variables to include in the model. That is, all models include the forecast variables, but may otherwise have differing sets of endogenous variables. This is a difficult problem to tackle with a traditional Bayesian approach. Our solution is to focus on the forecasting performance for the variables of interest and we construct model weights from the predictive likelihood of the forecast variables. The procedure is evaluated in a small simulation study and found to perform competitively in applications to real world data.

Date: 2008
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Related works:
Working Paper: Bayesian Forecast Combination for VAR Models (2007)
Working Paper: Bayesian forecast combination for VAR models (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(08)23015-x

DOI: 10.1016/S0731-9053(08)23015-X

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