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Macroeconomic Forecasting and Structural Change

Author

Listed:
  • D'Agostino, Antonello

    (Central Bank and Financial Services Authority of Ireland)

  • Gambetti, Luca

    (Universitat Autonoma de Barcelona)

  • Giannone, Domenico

    (ECARES, Université Libre de Bruxelles)

  • Giannone, Domenico

Abstract

The aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts. We produce real time out-of-sample forecasts for inflation, the unemployment rate and the interest rate using a Time-Varying Coefficients VAR with Stochastic Volatility (TV-VAR) for the US. The model generates accurate predictions for the three variables. In particular for inflation the TVVAR outperforms, in terms of mean square forecast error, all the competing models: fixed coefficients VARs, Time-Varying ARs and the na¨ýve random walk model. These results are also shown to hold over the most recent period in which it has been hard to forecast inflation.

Suggested Citation

  • D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:8/rt/09
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    References listed on IDEAS

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    More about this item

    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
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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