Economic Outlook: An application with cointegrating VAR models and probability forecasting
In this presentation, I discuss two applications of the vec commands. First, I use the cointegrating VAR approach discussed in Garratt et al. (2006) to fit a vector error-correction model. In contrast with the application of the traditional Johansen statistical restrictions for the identification of the coefficients of the cointegrating vectors, I use Stata to show an alternative specification of those restrictions based on the theoretical framework for the long-run cointegrating relationships. Second, I apply probability forecasting to simulate probability distributions for the forecasted periods. This approach produces probabilities for future single and joint events instead of only producing point forecasts and confidence intervals. For example, we could estimate the joint probability of two-digit inflation combined with a decrease in the GDP.
References listed on IDEAS
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- Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2006.
"Global and National Macroeconometric Modelling: A Long-Run Structural Approach,"
Oxford University Press, number 9780199296859, March.
- Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460, March.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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