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Density-Conditional Forecasts in Dynamic Multivariate Models

  • Andersson, Michael K.


    (Monetary Policy Department, Central Bank of Sweden)

  • Palmqvist, Stefan


    (Monetary Policy Department, Central Bank of Sweden)

  • Waggoner, Daniel F.


    (Research Department)

When generating conditional forecasts in dynamic models it is common to impose the conditions as restrictions on future structural shocks. However, these conditional forecasts often ignore that there may be uncertainty about the future development of the restricted variables. Our paper therefore proposes a generalization such that the conditions can be given as the full distribution of the restricted variables. We demonstrate, in two empirical applications, that ignoring the uncertainty about the conditions implies that the distributions of the unrestricted variables are too narrow.

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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 247.

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Length: 26 pages
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:hhs:rbnkwp:0247
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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  1. Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," FRB Atlanta Working Paper No. 2008-18, Federal Reserve Bank of Atlanta.
  2. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  3. Marek Jarocinski & Frank R. Smets, 2008. "House prices and the stance of monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 339-366.
  4. Kadiyala, K. Rao & Karlsson, Sune, 1994. "Numerical Aspects of Bayesian VAR-modeling," SSE/EFI Working Paper Series in Economics and Finance 12, Stockholm School of Economics.
  5. Mattias Villani, 2009. "Steady-state priors for vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(4), pages 630-650.
  6. John F. Geweke, 1995. "Bayesian inference for linear models subject to linear inequality constraints," Working Papers 552, Federal Reserve Bank of Minneapolis.
  7. Junior Maih, 2010. "Conditional forecasts in DSGE models," Working Paper 2010/07, Norges Bank.
  8. Daniel F. Waggoner & Tao Zha, 1999. "Conditional Forecasts In Dynamic Multivariate Models," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 639-651, November.
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