Bagging Time Series Models∗

A common problem in out-of-sample prediction is that there are potentially many relevant predictors that individually have only weak explanatory power. We propose bootstrap aggre-gation of pre-test predictors (or bagging for short) as a means of constructing forecasts from multiple regression models with local-to-zero regression parameters and errors subject to pos-sible serial correlation or conditional heteroskedasticity. Bagging is designed for situations in which the number of predictors (M) is moderately large relative to the sample size (T). We show how to implement bagging in the dynamic multiple regression model and provide asymptotic justification for the bagging predictor. A simulation study shows that bagging tends to pro-duce large reductions in the out-of-sample prediction mean squared error and provides a useful alternative to forecasting from factor models when M is large, but much smaller than T. We also find that bagging indicators of real economic activity greatly redcues the prediction mean squared error of forecasts of U.S. CPI inflation at horizons of one month and one year