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A Bayesian vector error corrections model of the U.S. economy

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Author Info
Tom Stark
Abstract

This paper presents a small-scale macroeconometric time-series model that can be used to generate short-term forecasts for U.S. output, inflation, and the rate of unemployment. Drawing on both the Bayesian VAR and vector error corrections (VEC) literature, the author specifies the baseline model as a Bayesian VEC. The author documents the model's forecasting ability over various periods, examines its impulse responses, and considers several reasonable alternative specifications. Based on a root-mean-square-error criterion, the baseline model works best, and the author concludes that this model holds promise as a workhorse forecasting tool.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 98-12.

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Date of creation: 1998
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Handle: RePEc:fip:fedpwp:98-12

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Related research
Keywords: Forecasting ; Time-series analysis;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard M. Todd, 1984. "Improving economic forecasting with Bayesian vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  2. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-72, March. [Downloadable!] (restricted)
    Other versions:
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  4. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June. [Downloadable!] (restricted)
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  5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1994. "Identification and the effects of monetary policy shocks," Working Paper Series, Macroeconomic Issues 94-7, Federal Reserve Bank of Chicago.
  6. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  7. Yash P. Mehra, 1997. "A review of the recent behavior of M2 demand," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-44. [Downloadable!]
  8. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June. [Downloadable!] (restricted)
    Other versions:
  9. Richard G. Anderson & Dennis L. Hoffman & Robert H. Rasche, 2001. "A vector error correction forecasting model of the U.S. economy," Working Papers 1998-008, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  10. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56. [Downloadable!]
  11. Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-14, Nov.-Dec.. [Downloadable!]
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  16. Robert Darin & Robert L. Hetzel, 1994. "A shift-adjusted M2 indicator for monetary policy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 25-48. [Downloadable!]
  17. John B. Carlson & Susan M. Byrne, 1992. "Recent behavior of velocity: alternative measures of money," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-10. [Downloadable!]
  18. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  19. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101. [Downloadable!]
    Other versions:
  20. Yash P. Mehra, 1996. "Monetary policy and long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-49. [Downloadable!]
  21. Peter F. Christoffersen & Francis X. Diebold, 1997. "Cointegration and long-horizon forecasting," Working Papers 97-14, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  22. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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  24. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
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  25. Robert D. Laurent, 1988. "An interest rate-based indicator of monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 3-14. [Downloadable!]
  26. King, Robert G. & Watson, Mark W., 1994. "The post-war U.S. phillips curve: a revisionist econometric history," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 157-219, December. [Downloadable!] (restricted)
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  27. LeSage, James P, 1990. "A Comparison of the Forecasting Ability of ECM and VAR Models," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 664-71, November. [Downloadable!] (restricted)
  28. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  29. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23. [Downloadable!]
  30. Bharat Trehan, 1992. "Predicting contemporaneous output," Economic Review, Federal Reserve Bank of San Francisco, pages 3-11. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dean Croushore & Tom Stark, 2000. "A real-time data set for macroeconomists: does data vintage matter for forecasting?," Working Papers 00-6, Federal Reserve Bank of Philadelphia. [Downloadable!]
  2. Tom Stark & Dean Croushore, 2001. "Forecasting with a real-time data set for macroeconomists," Working Papers 01-10, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  3. Tom Stark, 2000. "Does current-quarter information improve quarterly forecasts for the U.S. economy?," Working Papers 00-2, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. Dean Croushore & Tom Stark, 1999. "Does data vintage matter for forecasting?," Working Papers 99-15, Federal Reserve Bank of Philadelphia. [Downloadable!]
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