Performance of Shrinkage Methods for Forecasting GDP
The purpose of the study is to compare performance of three advanced shrinkage methods namely Ridge Regression, LASSO, and Elastic Net Regression methods, so that to come up with the most appropriate model for forecasting GDP in Indonesia and India. As the hybrid method, The Elastic Net Regression method is a convex combination of Ridge Regression Penalty and LASSO Penalty. Under the MSE criterion, Elastic Net Regression performs better compared to Ridge, and LASSO methods, thus the Elastic Net Regression is an appropriate method for forecasting GDP in Indonesia and India. Finally, based on the fitted elastic net regression models, we observed that the Number of International Tourist Arrivals and International Tourism Receipts have a large impact on GDP In Indonesia compared to India, only International Tourism Expenditures has a large impact on GDP in India compared to Indonesia.