Economic Predictions with Big Data: The Illusion of Sparsity

28 Pages Posted: 11 Sep 2017

See all articles by Domenico Giannone

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Michele Lenza

European Central Bank (ECB)

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

We compare sparse and dense representations of predictive models in macroeconomics, microeconomics and finance. To deal with a large number of possible predictors, we specify a "spike-and-slab" prior that allows for both variable selection and shrinkage. The posterior distribution does not typically concentrate on a single sparse or dense model but on a wide set of models. A clearer pattern of sparsity can only emerge when models of very low dimension are strongly favored a priori.

Suggested Citation

Giannone, Domenico and Lenza, Michele and Primiceri, Giorgio E., Economic Predictions with Big Data: The Illusion of Sparsity (August 2017). CEPR Discussion Paper No. DP12256. Available at SSRN: https://ssrn.com/abstract=3031893

Domenico Giannone (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giorgio E. Primiceri

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://faculty.econ.northwestern.edu/faculty/primiceri

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
366
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information