Advanced Search
MyIDEAS: Login

VAR Priors: Success or lack of a decent macroeconomic theory?

Contents:

Author Info

  • Francisco F. R. Ramos

    (Faculty of Economics, University of Porto, Portugal)

Registered author(s):

    Abstract

    The purpose of this paper is to demonstrate that the success of the Litterman prior in VAR forecasting is not due to the realism of the prior, but rather because the prior conveniently reduces forecast error variance in common cases of misspecification. Specifically, it is shown that the imposition of a random walk prior reduces forecast error variance in misspecifications involving (1) time-varying coefficients misspecified as constant coefficients, (2) serially correlated residuals misspecified as white noise, and (3) the inclusion of an irrelevant unit root process in VAR.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://128.118.178.162/eps/em/papers/9601/9601002.pdf
    Download Restriction: no

    File URL: http://128.118.178.162/eps/em/papers/9601/9601002.html
    Download Restriction: no

    File URL: http://128.118.178.162/eps/em/papers/9601/9601002.doc.gz
    Download Restriction: no

    File URL: http://128.118.178.162/eps/em/papers/9601/9601002.ps.gz
    Download Restriction: no

    Bibliographic Info

    Paper provided by EconWPA in its series Econometrics with number 9601002.

    as in new window
    Length: 18 pages
    Date of creation: 22 Jan 1996
    Date of revision:
    Handle: RePEc:wpa:wuwpem:9601002

    Note: Type of Document - word for windows 2.0; prepared on IBM PC ; to print on HP/Epson; pages: 18 ; figures: none. Word for Windows document submitted by ftp
    Contact details of provider:
    Web page: http://128.118.178.162

    Related research

    Keywords: BVAR; Forecasting performance; Litterman prior; Misspecification; Random-walk prior; VAR;

    Find related papers by JEL classification:

    References

    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.:
    as in new window
    1. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Fair, Ray C, 1979. "An Analysis of the Accuracy of Four Macroeconometric Models," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 701-18, August.
    4. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
    5. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
    6. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    7. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    8. Robert B. Litterman, 1984. "Specifying vector autoregressions for macroeconomic forecasting," Staff Report 92, Federal Reserve Bank of Minneapolis.
    9. Robert B. Litterman, 1979. "Techniques of forecasting using vector autoregressions," Working Papers 115, Federal Reserve Bank of Minneapolis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:9601002. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.