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Bayesian forecasting of real exchange rates with a Dornbusch prior

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  • Ca' Zorzi, Michele
  • Kocięcki, Andrzej
  • Rubaszek, Michał

Abstract

This paper assesses if a Bayesian VAR with a Dornbusch prior outperforms the random walk model in predicting real exchange rates. Our main contributions are twofold. First, from a methodological point of view we apply an innovative framework to estimate structural Bayesian VAR models. Second, we provide evidence that a VAR with a Dornbusch prior can generate more accurate forecasts for real exchange rates than a standard VAR model based on the random walk prior and the naïve random walk model.

Suggested Citation

  • Ca' Zorzi, Michele & Kocięcki, Andrzej & Rubaszek, Michał, 2015. "Bayesian forecasting of real exchange rates with a Dornbusch prior," Economic Modelling, Elsevier, vol. 46(C), pages 53-60.
    • Handle: RePEc:eee:ecmode:v:46:y:2015:i:c:p:53-60
    DOI: 10.1016/j.econmod.2014.10.060
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    Cited by:

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    6. Emiliano Brancaccio & Raffaele Giammetti & Milena Lopreite & Michelangelo Puliga, 2023. "Convergence in solvency and capital centralization: A B‐VAR analysis for high‐income and euro area countries," Metroeconomica, Wiley Blackwell, vol. 74(1), pages 40-73, February.
    7. Leandro Maciel & Rosangela Ballini, 2021. "Functional Fuzzy Rule-Based Modeling for Interval-Valued Data: An Empirical Application for Exchange Rates Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 57(2), pages 743-771, February.

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