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MACROECONOMIC FORECASTING AND STRUCTURAL CHANGES IN STEADY STATES

  

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.  

 

 

 

JEL classification numbers: C32

 

Keywords: Steady states; time-varying parameters; macroeconomic forecasting

 

 

 

Acknowledgement: The author would like to thank Heather Gibson for her constructive comments and suggestions. The views expressed in this article do not necessarily represent those of the Bank of Greece.

 

 

 

 

 

Correspondence:

Dimitrios P. Louzis

Bank of Greece

Economic Analysis and Research Department

21 E.Venizelos Avenue,

GR 10250, Athens, Greece

e-mail: dlouzis@bankofgreece.gr; dlouzis@aueb.gr

 


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