Bayesian Forecasting of US Growth using Basic Time Varying Parameter Models and Expectations Data

Nalan Baştürk, Sanli Ceyhan Darendeli and Herman van Dijk

No 14-119/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Time varying patterns in US growth are analyzed using various univariate model structures, starting from a naive model structure where all features change every period to a model where the slow variation in the conditional mean and changes in the conditional variance are specified together with their interaction, including survey data on expected growth in order to strengthen the information in the model. Use is made of a simulation based Bayesian inferential method to determine the forecasting performance of the various model specifications. The extension of a basic growth model with a constant mean to models including time variation in the mean and variance requires careful investigation of possible identification issues of the parameters and existence conditions of the posterior under a diffuse prior. The use of diffuse priors leads to a focus on the likelihood fu nction and it enables a researcher and policy adviser to evaluate the scientific information contained in model and data. Empirical results indicate that incorporating time variation in mean growth rates as well as in volatility are important in order to improve for the predictive performances of growth models. Furthermore, using data information on growth expectations is important for forecasting growth in specific periods, such as the the recession periods around 2000s and around 2008.

Keywords: Growth; Time varying parameters; Expectations data (search for similar items in EconPapers)
JEL-codes: C11 C22 E17 (search for similar items in EconPapers)
Date: 2014-09-01, Revised 2014-09-14
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
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