Forecasting with dynamic models using shrinkage-based estimation
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1473-0278
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Queen Mary University of London; Working Papers; 2008/635
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CARRIERO, Andrea, KAPETANIOS, George, MARCELLINO, Massimiliano, Forecasting with dynamic models using shrinkage-based estimation, Queen Mary University of London, Working Papers, 2008/635 - https://hdl.handle.net/1814/42343
Abstract
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.