Giannone, Domenico Lenza, Michele Primiceri, Giorgio E.
Year of Publication:
ECB Working Paper No. 2542
We compare sparse and dense representations of predictive models in macroeconomics, microeconomics and ftnance. To deal with a large number of possible predictors, we specify a prior that allows for both variable selection and shrinkage. The posterior distribution does not typically concentrate on a single sparse model, but on a wide set of models that often include many predictors.
Variable Selection Shrinkage Model uncertainty Curse of dimensionality