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Forecasting with Structural Models and VARs: Relative Advantages and the Client Connection

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  • Dan Hamilton

Abstract

With this article, Foresight introduces a new section of methods tutorials. Our intention is to provide a broad overview of a method for those who are not currently specialists in that particular area, and possibly to stimulate new thinking about the proper use and goals of the methodology. Since the early 1980s, structural (“econometric”) models and vector autoregressions (VARs) have been competing forecasting techniques. The structural approach has been widely used since the 1950s by macroeconomic forecasters. The VAR approach was forcefully advocated for macroeconomic forecastuse by Christopher Sims in his 1980 Econometrica article. In our first Foresight tutorial, Dan Hamilton describes the two techniques and discusses what each implies for the client connection. Certain aspects of the discussion are oriented to macroeconomic forecasting, but the main conclusions of the article apply to any forecast setting. Copyright International Institute of Forecasters, 2011

Suggested Citation

  • Dan Hamilton, 2011. "Forecasting with Structural Models and VARs: Relative Advantages and the Client Connection," Foresight: The International Journal of Applied Forecasting, International Institute of Forecasters, issue 23, pages 37-42, Fall.
  • Handle: RePEc:for:ijafaa:y:2011:i:23:p:37-42
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    Cited by:

    1. Johanna Posch & Fabio Rumler, 2015. "Semi‐Structural Forecasting of UK Inflation Based on the Hybrid New Keynesian Phillips Curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 34(2), pages 145-162, March.

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