Variable Selection and Inference for Multi-Period Forecasting Problems

This paper conducts a broad-based comparison of iterated and direct multi-step forecasting approaches applied to both univariate and multivariate models. Theoretical results and Monte Carlo simulations suggest that iterated forecasts dominate direct forecasts when estimation error is a first-order concern, i.e. in small samples and for long forecast horizons. Conversely, direct forecasts may dominate in the presence of dynamic model misspecification. Empirical analysis of the set of 170 variables studied by Marcellino, Stock and Watson (2006) shows that multivariate information, introduced through a parsimonious factor-augmented vector autoregression approach, improves forecasting performance for many variables, particularly at short horizons.

[1]  D. Cox.  Prediction by Exponentially Weighted Moving Averages and Related Methods , 1961 .

[2]  Peter C. B. Phillips,et al.  The sampling distribution of forecasts from a first-order autoregression , 1979 .

[3]  Jean Boivin,et al.  Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach , 2003 .

[4]  J. Stock,et al.  A Comparison of Direct and Iterated Multistep Ar Methods for Forecasting Macroeconomic Time Series , 2005 .

[5]  Sascha O. Becker,et al.  Going NUTS: The Effect of EU Structural Funds on Regional Performance , 2008, SSRN Electronic Journal.

[6]  J. Stock,et al.  Forecasting Using Principal Components From a Large Number of Predictors , 2002 .

[7]  Christian Bruns,et al.  It's the Media, Stupid - How Media Activity Shapes Public Spending , 2007, SSRN Electronic Journal.

[8]  George Tridimas,et al.  Social Welfare and Coercion in Public Finance , 2008, SSRN Electronic Journal.

[9]  Jan R. Magnus,et al.  The Bias of Forecasts from a First-Order Autoregression , 1991, Econometric Theory.

[10]  Halbert White,et al.  Tests of Conditional Predictive Ability , 2003 .

[11]  Dirk Niepelt,et al.  Debt Maturity without Commitment , 2008, SSRN Electronic Journal.

[12]  Ronnie Schöb,et al.  Minimum Wages and their Alternatives: A Critical Assessment , 2008, SSRN Electronic Journal.

[13]  Serena Ng,et al.  Boosting diffusion indices , 2009 .

[14]  Chris Chatfield,et al.  Introduction to Statistical Time Series. , 1976 .

[15]  J. Bai,et al.  Determining the Number of Factors in Approximate Factor Models , 2000 .

[16]  R. Mariano,et al.  Measures of Deterministic Prediction Bias in Nonlinear Models , 1989 .

[17]  Aman Ullah,et al.  Finite Sample Econometrics , 2004 .

[18]  S. Carson,et al.  Nineteenth Century Black and White US Statures: The Primary Sources of Vitamin D and Their Relationship with Height , 2008 .

[19]  Wolfgang J. Luhan,et al.  Cedex Discussion Paper Series , 2022 .

[20]  H. Schlesinger,et al.  Exploring Higher-Order Risk Effects , 2008, SSRN Electronic Journal.

[21]  P. Burridge,et al.  A Very Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix , 1991 .

[22]  Marco Lippi,et al.  The Generalized Dynamic Factor Model , 2002 .

[23]  A. Timmermann,et al.  Small Sample Properties of Forecasts from Autoregressive Models Under Structural Breaks , 2003, SSRN Electronic Journal.

[24]  Stephen Taylor,et al.  Forecasting Economic Time Series , 1979 .

[25]  Marco Runkel,et al.  STRATEGIC CONSOLIDATION UNDER FORMULA APPORTIONMENT , 2008, National Tax Journal.

[26]  Harry Huizinga,et al.  International Taxation and Multinational Firm Location Decisions , 2008, SSRN Electronic Journal.

[27]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[28]  Harry Garretsen,et al.  Economic Geography and Economic Development in Sub-Saharan Africa , 2008, SSRN Electronic Journal.

[29]  Robert Dur,et al.  Gift Exchange in the Workplace: Money or Attention? , 2008, SSRN Electronic Journal.

[30]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[31]  Ching-Kang Ing,et al.  MULTISTEP PREDICTION IN AUTOREGRESSIVE PROCESSES , 2003, Econometric Theory.

[32]  Volker Meier,et al.  Social Security Systems, Human Capital, and Growth in a Small Open Economy , 2008, SSRN Electronic Journal.

[33]  Thomas Aronsson,et al.  Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment , 2008, SSRN Electronic Journal.

[34]  Michael Fritsch,et al.  The Apple Doesn't Fall Far from the Tree: Location of Start-Ups Relative to Incumbents , 2008, SSRN Electronic Journal.

[35]  Mikael Elinder,et al.  Selfish and Prospective: Theory and Evidence of Pocketbook Voting , 2008, SSRN Electronic Journal.

[36]  Frank Schorfheide,et al.  VAR forecasting under misspecification , 2005 .

[37]  H. Kelejian,et al.  A Spatial Cliff-Ord-Type Model with Heteroskedastic Innovations: Small and Large Sample Results , 2008, SSRN Electronic Journal.

[38]  Benno Torgler,et al.  Politicians: be killed or survive , 2008, Public Choice.