Mitchell, J. and Robertson, D. and Wright, Stephen (2018) R2 bounds for predictive models: what univariate properties tell us about multivariate predictability. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
A longstanding puzzle in macroeconomic forecasting has been that a wide variety of multivariate models have struggled to out-predict univariate models consistently. We seek an explanation for this puzzle in terms of population properties. We derive bounds for the predictive R2 of the true, but unknown, multivariate model from univariate ARMA parameters alone. These bounds can be quite tight, implying little forecasting gain even if we knew the true multivariate model. We illustrate using CPI inflation data.
Metadata
| Item Type: | Monograph (Working Paper) |
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| Additional Information: | BWPEF 1804 |
| Keyword(s) / Subject(s): | forecasting, macroeconomic models, autoregressive moving average representations, predictive regressions, nonfundamental representations, time-varying ARMA, inflation forecasts |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Administrator |
| Date Deposited: | 25 Mar 2019 11:23 |
| Last Modified: | 02 Aug 2023 17:49 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26851 |
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