Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296020 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 10931
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Forecasts play a central role in decision making under uncertainty. After a brief review of the general issues, this paper considers ways of using high-dimensional data in forecasting. We consider selecting variables from a known active set, known knowns, using Lasso and OCMT, and approximating unobserved latent factors, known unknowns, by various means. This combines both sparse and dense approaches. We demonstrate the various issues involved in variable selection in a high-dimensional setting with an application to forecasting UK inflation at different horizons over the period 2020q1-2023q1. This application shows both the power of parsimonious models and the importance of allowing for global variables.
Subjects: 
forecasting
high-dimensional data
Lasso
OCMT
latent factors
principal components
JEL: 
C53
C55
E37
E52
Document Type: 
Working Paper
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