Last Night a Shrinkage Saved My Life: Economic Growth, Model Uncertainty and Correlated Regressors

Last Night a Shrinkage Saved My Life: Economic Growth, Model Uncertainty and Correlated Regressors

0.00 Avg rating0 Votes
Article ID: iaor201523660
Volume: 34
Issue: 2
Start Page Number: 133
End Page Number: 144
Publication Date: Mar 2015
Journal: Journal of Forecasting
Authors: , , ,
Keywords: simulation, forecasting: applications
Abstract:

We compare the predictive ability of Bayesian methods which deal simultaneously with model uncertainty and correlated regressors in the framework of cross‐country growth regressions. In particular, we assess methods with spike and slab priors combined with different prior specifications for the slope parameters in the slab. Our results indicate that moving away from Gaussian g‐priors towards Bayesian ridge, LASSO or elastic net specifications has clear advantages for prediction when dealing with datasets of (potentially highly) correlated regressors, a pervasive characteristic of the data used hitherto in the econometric literature.

Reviews

Required fields are marked *. Your email address will not be published.