Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100912
Authors: 
Robertson, John C.
Tallman, Ellis W.
Year of Publication: 
1999
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 99-13
Abstract: 
Models used for policy analysis should generate reliable unconditional forecasts as well as policy simulations (conditional forecasts) that are based on a structural model of the economy. Vector autoregression (VAR) models have been criticized for having inaccurate forecasts as well as being difficult to interpret in the context of an underlying economic model. In this paper, we examine how the treatment of prior uncertainty about parameter values can affect forecasting accuracy and the interpretation of identified structural VAR models. ; Typically, VAR models are specified with long lag orders and a diffuse prior about the unrestricted coefficients. We find evidence that alternatives that emphasize nonstationary aspects of the data as well as parsimony in parameterization have better out-of-sample forecast performance and smoother and more persistent responses to a given exogenous monetary policy change than do unrestricted VARs.
Subjects: 
Forecasting
Vector autoregression
Econometric models
Document Type: 
Working Paper

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