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A Bayesian Vector Autoregressive Model with Informative Steady-state Priors for the Australian Economy

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  • MEREDITH BEECHEY
  • P�R �STERHOLM

Abstract

This article applies a Bayesian vector autoregressive model with informative steady-state priors to a parsimonious model of the Australian economy. The model captures economic linkages among key Australian and US variables and is estimated on quarterly data from 1985 to 2006. An out-of-sample forecast exercise shows that the model with informative steady-state priors generally outperforms a traditional Bayesian vector autoregressive model as well as naïve forecasts. The model can also be used to generate density forecasts and analyse alternative scenarios, which we illustrate with the effect on the Australian economy of a substantial real depreciation of the US dollar. Copyright © 2008 The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 84 (2008)
Issue (Month): 267 (December)
Pages: 449-465

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Handle: RePEc:bla:ecorec:v:84:y:2008:i:267:p:449-465

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Cited by:
  1. Österholm, Pär, 2009. "The Effect on the Swedish Real Economy of the Financial Crisis," Working Paper 110, National Institute of Economic Research.
  2. SENBETA, Sisay Regassa, 2012. "How important are external shocks in explaining growth in Sub-Saharan Africa? Evidence from a Bayesian VAR," Working Papers 2012010, University of Antwerp, Faculty of Applied Economics.

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