Last night a shrinkage saved my life: economic growth, model uncertainty and correlated regressors

Hofmarcher P, Crespo Cuaresma J, Gruen B, & Hornik K (2015). Last night a shrinkage saved my life: economic growth, model uncertainty and correlated regressors. Journal of Forecasting 34 (2): 133-144. DOI:10.1002/for.2328.

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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 Gaussan 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.

Item Type: Article
Uncontrolled Keywords: model uncertainty; prediction; economic growth; Bayesian methods; correlated regressors
Research Programs: World Population (POP)
Bibliographic Reference: Journal of Forecasting; 34(2):133-144 (March 2015) (Published online 1 February 2015)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:53
Last Modified: 17 Feb 2016 15:09
URI: http://pure.iiasa.ac.at/11499

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