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Raffaella Giacomini, UCLondon Print
Thursday, 27 October 2011, 12:15 - 13:15

Raffaella Giacomini, University College London

Incorporating theoretical restrictions in forecasting by projection methods

Abstract: We propose a method for modifying a given forecast in a way that incorporates the information contained in theory-based moment conditions. An example is "improving" the forecasts from atheoretical econometric models, such as factor models or Bayesian VARs, by ensuring that they satisfy theoretical restrictions given for example by Euler conditions or implied by Taylor rules. The method yields density forecasts which have a simple and convenient analytical expression and which by construction satisfy the theoretical restrictions. The method is flexible and can be used in the realistic situation in which economic theory does not specify a likelihood for the variables of interest, and thus cannot be readily used for forecasting.

Location: R42.2.113
Contact: Claude Adan, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it