Bayesian Model Selection and Prediction with Empirical Applications

Peter Phillips

No 1023, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper builds on some recent work by the author and Werner Ploberger (1991, 1994) on the development of "Bayes models" for time series and on the authors' model selection criterion "PIC." The PIC criterion is used in this paper to determine the lag order, the trend degree, and the presence or absence of a unit root in an autoregression with deterministic trend. A new forecast encompassing test for Bayes models is developed which allows one Bayes model to be compared with another on the basis of their respective forecasting performance. The paper reports an extended empirical application of the methodology to the Nelson-Plosser (1982)/Schotman-van Dijk (1991) data. It is shown that parsimonious, evolving-format Bayes models forecast-encompass fixed Bayes models of the "AR(3) + linear trend" variety for most of these series. In some cases, the forecast performance of the parsimonious Bayes models is substantially superior. The results cast some doubts on the value of working with fixed format time series models in empirical research and demonstrate the practical advantages of evolving-format models. The paper makes a new suggestion for modelling interest rates in terms of reciprocals of levels rather than levels (which display more volatility) and shows that the best data-determined model for this transformed series is a martingale. Keywords: Bayes model, Bayes measure, BIC, forecast, forecast-encompass, model selection, PIC, unit root

Pages: 31 pages
Date: 1992-07
Note: CFP 911.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Econometrics (1995), 69: 289-331

Downloads: (external link)
https://cowles.yale.edu/sites/default/files/files/pub/d10/d1023.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: Bayesian model selection and prediction with empirical applications (1995)
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:cwl:cwldpp:1023

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Brittany Ladd ().