Have Standard VARs Remained Stable since the Crisis?

Knut Are Aastveit, Andrea Carriero, Todd Clark and Massimiliano Marcellino
Authors registered in the RePEc Author Service: Kristle Romero Cortes

No 1411, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Small or medium-scale VARs are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism. This requires the VAR parameters to be stable over the evaluation and forecast sample, or to explicitly consider parameter time variation. The earlier literature focused on whether there were sizable parameter changes in the early 1980s, in either the conditional mean or variance parameters, and in the subsequent period till the beginning of the new century. In this paper we conduct a similar analysis but focus on the effects of the recent crisis. Using a range of techniques, we provide substantial evidence against parameter stability. The evolution of the unemployment rate seems particularly different relative to its past behavior. We then discuss and evaluate alternative methods to handle parameter instability in a forecasting context. While none of the methods clearly emerges as best, some techniques turn out to be useful to improve the forecasting performance.

Keywords: Bayesian VARs; Forecasting; Time-varying parameters; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: C11 C33 C53 E17 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2014-09-18
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-201411 Persistent link
https://www.clevelandfed.org/-/media/project/cleve ... e-the-crisis-pdf.pdf Full text (application/pdf)

Related works:
Journal Article: Have Standard VARS Remained Stable Since the Crisis? (2017)
Working Paper: Have Standard VARs Remained Stable Since the Crisis? (2016)
Working Paper: Have standard VARs remained stable since the crisis? (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1411

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-201411

Access Statistics for this paper

More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().