Bayesian Forecasting with Highly Correlated Predictors
16 Pages Posted: 19 Oct 2012
Date Written: July 2012
This paper considers Bayesian variable selection in regressions with a large number of possibly highly correlated macroeconomic predictors. I show that acknowledging the correlation structure in the predictors can improve forecasts over existing popular Bayesian variable selection algorithms.
Keywords: Bayesian semiparametric selection, Dirichlet process prior, correlated predictors, clustered coefficients
JEL Classification: C11, C14, C32, C52, C53
Suggested Citation: Suggested Citation