International Journal of Econometrics and Financial Management
ISSN (Print): 2374-2011 ISSN (Online): 2374-2038 Website: http://www.sciepub.com/journal/ijefm Editor-in-chief: Tarek Sadraoui
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International Journal of Econometrics and Financial Management. 2015, 3(3), 121-130
DOI: 10.12691/ijefm-3-3-3
Open AccessArticle

Adjusting Band-Regression Estimators for Prediction: Shrinkage and Downweighting

Erhard Reschenhofer1, and Marek Chudy1

1Department of Statistics and Operations Research, University of Vienna, Vienna, Austria

Pub. Date: May 31, 2015

Cite this paper:
Erhard Reschenhofer and Marek Chudy. Adjusting Band-Regression Estimators for Prediction: Shrinkage and Downweighting. International Journal of Econometrics and Financial Management. 2015; 3(3):121-130. doi: 10.12691/ijefm-3-3-3

Abstract

This paper proposes further developments of band-regression models for forecasting purposes, namely a simple method for shrinking the parameter estimates as well as a method for the automatic selection of the underlying frequency band. In combination with a method for downweighting older data, the improved band-regression model is used to forecast real GDP growth across nine industrialized economies. The results of this empirical study show that this forecasting approach outperforms conventional forecasting methods. As a secondary finding, the empirical results also raise doubts whether the yield-curve spread is really a valuable leading indicator of GDP growth.

Keywords:
forecasting optimal weights band regression shrinkage fractional degrees of freedom

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