Time Varying Sparsity in dynamic regression models

Maria Kalli, Jim Griffin

Research output: Contribution to journalArticlepeer-review

43 Citations (Scopus)

Abstract

A novel Bayesian method for inference in dynamic regression models is proposed where both the values of the regression coefficients and the importance of the variables are allowed to change over time. We focus on forecasting and so the parsimony of the model is important for good performance. A prior is developed which allows the shrinkage of the regression coefficients to suitably change over time and an efficient Markov chain Monte Carlo method for posterior inference is described. The new method is applied to two forecasting problems in econometrics: equity premium prediction and inflation forecasting. The results show that this method outperforms current competing Bayesian methods.
Original languageEnglish
JournalJOURNAL OF ECONOMETRICS
Volume178
Issue number2
Early online date8 Nov 2013
DOIs
Publication statusE-pub ahead of print - 8 Nov 2013

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