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Economic Predictions With Big Data: The Illusion of Sparsity

Author

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  • Domenico Giannone
  • Michele Lenza
  • Giorgio E. Primiceri
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.

Suggested Citation

  • Domenico Giannone & Michele Lenza & Giorgio E. Primiceri, 2021. "Economic Predictions With Big Data: The Illusion of Sparsity," Econometrica, Econometric Society, vol. 89(5), pages 2409-2437, September.
    • Handle: RePEc:wly:emetrp:v:89:y:2021:i:5:p:2409-2437
    DOI: 10.3982/ECTA17842
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    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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