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Structural forecast analysis

Author

Listed:
  • Davide Brignone

    (Bank of England)

  • Michele Piffer

    (Bank of England)

Abstract

This paper shows how the structural representation of a vector autoregressive (VAR) model can support forecast analysis. We offer a unified framework that formalises how the structural form of the model can help form a narrative for two key statistics in real-time VAR forecasting: the forecast errors relative to the outturn of the data, and the consequent revisions of the forecast. To illustrate the method developed, we conduct a stylised real-time exercise on the UK, focusing on the inflation surge that followed the pandemic. We show that the inflation forecast produced by a four-variable VAR model was revised upwards not only due to contractionary supply-side shocks, but also due to a mix of expansionary demand-side shocks, and a revision in the past shocks.

Suggested Citation

  • Davide Brignone & Michele Piffer, 2026. "Structural forecast analysis," Bank of England Staff Working Paper series 1165, Bank of England.
    • Handle: RePEc:boe:boeewp:023287
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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