EconPapers    
Economics at your fingertips  
 

Empirical Bayesian density forecasting in Iowa and shrinkage for the Monte Carlo era

Kurt Lewis () and Charles Whiteman ()

No 2006,28, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: The track record of a sixteen-year history of density forecasts of state tax revenue in Iowa is studied, and potential improvements sought through a search for better performing "priors" similar to that conducted two decades ago for point forecasts by Doan, Litterman, and Sims (Econometric Reviews, 1984). Comparisons of the point- and density-forecasts produced under the flat prior are made to those produced by the traditional (mixed estimation) "Bayesian VAR" methods of Doan, Litterman, and Sims, as well as to fully Bayesian, "Minnesota Prior" forecasts. The actual record, and to a somewhat lesser extent, the record of the alternative procedures studied in pseudo-real-time forecasting experiments, share a characteristic: subsequently realized revenues are in the lower tails of the predicted distributions "too often". An alternative empirically-based prior is found by working directly on the probability distribution for the VAR parameters, seeking a betterperforming entropically tilted prior that minimizes in-sample mean-squared-error subject to a Kullback-Leibler divergence constraint that the new prior not differ "too much" from the original. We also study the closely related topic of robust prediction appropriate for situations of ambiguity. Robust "priors" are competitive in out-of-sample forecasting; despite the freedom afforded the entropically tilted prior, it does not perform better than the simple alternatives.

New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/19657/1/200628dkp.pdf (application/pdf)

Related works:
Journal Article: Empirical Bayesian Density Forecasting in Iowa and Shrinkage for the Monte Carlo Era (2015) Downloads
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:zbw:bubdp1:4757

Access Statistics for this paper

More papers in Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2019-07-29
Handle: RePEc:zbw:bubdp1:4757