The Effect of Non-Linearity Between Credit Conditions and Economic Activity on Density Forecasts

Michal Franta

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper examines the effect of non-linearities on density forecasting. It focuses on the relationship between credit markets and the rest of the economy. The possible non-linearity of this relationship is captured by a threshold vector autoregressive model estimated on the US data using Bayesian methods. Density forecasts thus account for the uncertainty in all model parameters and possible future regime changes. It is shown that considering non-linearity can improve the probabilistic assessment of the economic outlook. Moreover, three illustrative examples are discussed to shed some light on the possible practical applicability of density forecasts derived from non-linear models.

Keywords: density forecasting; nonlinearity; threshold autoregressive model. (search for similar items in EconPapers)
JEL-codes: C11 C32 E44 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2013/09

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