Uncertainty and Heterogeneity in Factor Models Forecasting

36 Pages Posted: 22 Nov 2013

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2013

Abstract

In this paper, we exploit the heterogeneity in the forecasts obtained by estimating different factor models to measure forecast uncertainty. Our approach is simple and intuitive. It consists first in selecting all the models that outperform some benchmark model, and then in constructing an empirical distribution of the forecasts produced by them. We interpret this distribution as a measure of uncertainty. We illustrate our methodology by means of a forecasting exercise using a large database of Italian data from 1982 to 2009.

Keywords: factor models, model uncertainty, forecast combination, density forecast

JEL Classification: C13, C32, C33, C52, C53

Suggested Citation

Luciani, Matteo and Monteforte, Libero, Uncertainty and Heterogeneity in Factor Models Forecasting (September 20, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 930. Available at SSRN: https://ssrn.com/abstract=2358405 or http://dx.doi.org/10.2139/ssrn.2358405

Matteo Luciani

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Libero Monteforte (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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