VAR-ing the economy of the Netherlands
AbstractThis paper adopts the vector autoregression (VAR) approach to modelling the economy of the Netherlands. A VAR system with four endogenous variables---gross domestic product, inflation, the capital market interest rate and the money market interest rate---is built. The small, open character of the Dutch economy suggests the inclusion of foreign exogenous variables, so we also construct a VARX system (with world trade and the German capital market and money market rates as exogenous variables). Both the VAR system and the VARX system are estimated with error-correction mechanisms to take proper account of the non-stationarity of the variables. The VAR system and the VARX system are compared to the IBS-CCSO model, a structural macroeconometric model of the economy of the Netherlands. Compared to the IBS-CCSO model, the VAR system gives better results for production and inflation, whereas the structural macroeconometric IBS-CCSO model is to be preferred for the interest rates. The VARX system outperforms not only the VAR system but also the IBS-CCSO model.
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Bibliographic InfoPaper provided by Centre for Economic Research, University of Groningen and University of Twente in its series Working Papers with number 24.
Date of creation: Jan 1996
Date of revision:
vector autoregression; forecast comparison;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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