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Evaluating real-time VAR forecasts with an informative democratic prior

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  • Jonathan H. Wright

Abstract

This paper proposes Bayesian forecasting in a vector autoregression using a democratic prior. This prior is chosen to match the predictions of survey respondents. In particular, the unconditional mean for each series in the vector autoregression is centered around long-horizon survey forecasts. Heavy shrinkage toward the democratic prior is found to give good real-time predictions of a range of macroeconomic variables, as these survey projections are good at quickly capturing endpoint-shifts.

Suggested Citation

  • Jonathan H. Wright, 2010. "Evaluating real-time VAR forecasts with an informative democratic prior," Working Papers 10-19, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:10-19
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    Keywords

    Forecasting; Real-time data;

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