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Macroeconomic forecasting and structural changes in steady states

Author

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  • Dimitrios P. Louzis

    (Bank of Greece)

Abstract

This article proposes methods for estimating a Bayesian vector autoregression (VAR) model with an informative steady state prior which also accounts for possible structural changes in the long-term trend of the macroeconomic variables. I show that, overall, the proposed time-varying steady state VAR model can lead to superior point and density macroeconomic forecasting compared to constant steady state VAR specifications.

Suggested Citation

  • Dimitrios P. Louzis, 2016. "Macroeconomic forecasting and structural changes in steady states," Working Papers 204, Bank of Greece.
    • Handle: RePEc:bog:wpaper:204
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    References listed on IDEAS

    as
    1. Carriero, Andrea & Mumtaz, Haroon & Theophilopoulou, Angeliki, 2015. "Macroeconomic information, structural change, and the prediction of fiscal aggregates," International Journal of Forecasting, Elsevier, vol. 31(2), pages 325-348.
    2. Todd E. Clark, 2011. "Real-Time Density Forecasts From Bayesian Vector Autoregressions With Stochastic Volatility," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(3), pages 327-341, July.
    3. Jonathan H. Wright, 2013. "Evaluating Real‐Time Var Forecasts With An Informative Democratic Prior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(5), pages 762-776, August.
    4. Luc Bauwens & Gary Koop & Dimitris Korobilis & Jeroen V.K. Rombouts, 2015. "The Contribution of Structural Break Models to Forecasting Macroeconomic Series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(4), pages 596-620, June.
    5. Chan, Joshua C.C. & Koop, Gary, 2014. "Modelling breaks and clusters in the steady states of macroeconomic variables," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 186-193.
    6. Marco Del Negro & Giorgio E. Primiceri, 2015. "Time Varying Structural Vector Autoregressions and Monetary Policy: A Corrigendum," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1342-1345.
    7. Antonello D'Agostino & Luca Gambetti & Domenico Giannone, 2013. "Macroeconomic forecasting and structural change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 82-101, January.
    8. Beechey, Meredith & Österholm, Pär, 2010. "Forecasting inflation in an inflation-targeting regime: A role for informative steady-state priors," International Journal of Forecasting, Elsevier, vol. 26(2), pages 248-264, April.
    9. Mattias Villani, 2009. "Steady-state priors for vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(4), pages 630-650.
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    Citations

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    Cited by:

    1. Nikos Vettas & Ioannis Giotopoulos & Evangelia Valavanioti & Svetoslav Danchev, 2016. "The determinants of new firms’ export performance," Economic Bulletin, Bank of Greece, issue 43, pages 7-17, July.
    2. Styliani Belli & Constantina Backinezos, 2016. "The transition to the new methodology for the compilation of balance of payments statistics – BPM6," Economic Bulletin, Bank of Greece, issue 43, pages 19-29, July.
    3. repec:bog:econbl:y:2016:i:43:p:19-29 is not listed on IDEAS
    4. repec:bog:econbl:y:2016:i:43:p:31-53 is not listed on IDEAS
    5. Sophia Lazaretou, 2016. "The Greek brain drain: the new pattern of Greek emigration during the recent crisis," Economic Bulletin, Bank of Greece, issue 43, pages 31-53, July.
    6. repec:bog:econbl:y:2016:i:43:p:55-75 is not listed on IDEAS
    7. repec:bog:econbl:y:2016:i:43:p:7-17 is not listed on IDEAS
    8. Faidon Kalfaoglou, 2016. "Bank recapitalisation: a necessary but not sufficient condition for resuming lending," Economic Bulletin, Bank of Greece, issue 43, pages 55-75, July.
    9. Constantin ANGHELACHE & Cristina SACALA, 2016. "Theoretical model used for macroeconomic analysis," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(7), pages 57-60, July.

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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

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