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Macroeconomic uncertainty and forecasting macroeconomic aggregates

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  • Reif Magnus

    (Ifo Institute, CESifo, and LMU Munich, Poschingerstr. 5, 81679 Munich, Germany)

Abstract

Can information on macroeconomic uncertainty improve the forecast accuracy for key macroeconomic time series for the US? Since previous studies have demonstrated that the link between the real economy and uncertainty is subject to nonlinearities, I assess the predictive power of macroeconomic uncertainty in both linear and nonlinear Bayesian VARs. For the latter, I use a threshold VAR that allows for regime-dependent dynamics conditional on the level of the uncertainty measure. I find that the predictive power of macroeconomic uncertainty in the linear VAR is negligible. In contrast, using information on macroeconomic uncertainty in a threshold VAR can significantly improve the accuracy of short-term point and density forecasts, especially in the presence of high uncertainty.

Suggested Citation

  • Reif Magnus, 2021. "Macroeconomic uncertainty and forecasting macroeconomic aggregates," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(2), pages 1-20, April.
  • Handle: RePEc:bpj:sndecm:v:25:y:2021:i:2:p:20:n:5
    DOI: 10.1515/snde-2019-0073
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    3. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87, April.
    4. Nakajima, Jouchi, 2022. "Macroeconomic uncertainty matters: A nonlinear effect of financial volatility on real economic activity," Discussion paper series HIAS-E-121, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    More about this item

    Keywords

    BVAR; forecasting; nonlinearity; threshold VAR; uncertainty;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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