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Conditional Forecasts In Dynamic Multivariate Models

  • Daniel F. Waggoner
  • Tao Zha

In the existing literature, conditional forecasts in the vector autoregressive (VAR) framework have not been commonly presented with probability distributions. This paper develops Bayesian methods for computing the exact finite-sample distribution of conditional forecasts. It broadens the class of conditional forecasts to which the methods can be applied. The methods work for both structural and reduced-form VAR models and, in contrast to common practices, account for parameter uncertainty in finite samples. Empirical examples under both a flat prior and a reference prior are provided to show the use of these methods. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465399558508
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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 81 (1999)
Issue (Month): 4 (November)
Pages: 639-651

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Handle: RePEc:tpr:restat:v:81:y:1999:i:4:p:639-651
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  1. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
  2. Francis X. Diebold, 1997. "The past, present, and future of macroeconomic forecasting," Working Papers 97-20, Federal Reserve Bank of Philadelphia.
  3. Preston J. Miller & William Roberds, 1987. "The quantitative significance of the Lucas critique," Staff Report 109, Federal Reserve Bank of Minneapolis.
  4. Daniel F. Waggoner & Tao Zha, 1997. "Normalization, probability distribution, and impulse responses," Working Paper 97-11, Federal Reserve Bank of Atlanta.
  5. Francis X. Diebold & Peter F. Christoffersen, 1997. "Cointegration and Long-Horizon Forecasting," IMF Working Papers 97/61, International Monetary Fund.
  6. Zha, Tao, 1999. "Block recursion and structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 90(2), pages 291-316, June.
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  8. Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating Density Forecasts," NBER Technical Working Papers 0215, National Bureau of Economic Research, Inc.
  9. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
  10. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  11. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
  12. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, March.
  13. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
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