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Econometrica Vol. 89 No. 5 2021

Economic Predictions With Big Data: The Illusion of Sparsity

Domenico Giannone1,2; Michele Lenza3,2,4; Giorgio E. Primiceri5,2,6

1 Amazon · 2 CEPR , · 3 European Central Bank · 4 ECARES · 5 Department of Economics, Northwestern University · 6 NBER

open access

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 prior that allows for both variable selection and shrinkage. The posterior distribution does not typically concentrate on a single sparse model, but on a wide set of models that often include many predictors.

DOI
10.3982/ecta17842
Volume
89
Issue
5
Pages
2409-2437
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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