Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244435 
Year of Publication: 
2007
Series/Report no.: 
Working Paper No. 13/2007
Publisher: 
Örebro University School of Business, Örebro
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 di erence 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 di ering 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.
Subjects: 
Bayesian model averaging
Predictive likelihood
GDP forecasts
JEL: 
C11
C15
C32
C52
C53
Document Type: 
Working Paper

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