Carriero, Andrea Kapetanios, George Marcellino, Massimiliano
Year of Publication:
Working Paper // School of Economics and Finance, Queen Mary, University of London 635
The paper provides a proof of consistency of the ridge estimator for regressions where the number of regressors tends to infinity. Such result is obtained without assuming a factor structure. A Monte Carlo study suggests that shrinkage autoregressive models can lead to very substantial advantages compared to standard autoregressive models. An empirical application focusing on forecasting inflation and GDP growth in a panel of countries confirms this finding.