Forecasting with a Panel Tobit Model

Abstract

We use a dynamic panel Tobit model with heteroskedasticity to generate point, set, and density forecasts for a large cross-section of short time series of censored observations. Our fully Bayesian approach allows us to flexibly estimate the cross-sectional distribution of heterogeneous coefficients and then implicitly use this distribution as prior to construct Bayes forecasts for the individual time series. We construct set forecasts that explicitly target the average coverage probability for the cross-section. We present a novel application in which we forecast bank-level charge-off rates for credit card and residential real estate loans, comparing various versions of the panel Tobit model.

Keywords: Bayesian Inference, Density Forecasts, Interval Forecasts, Loan Charge-Offs, Panel Data, Point Forecasts, Set Forecasts, Tobit Model

JEL Classification: C11, C14, C23, C53, G21