Forecasting with small macroeconomic VARs in the presence of instabilities

Todd Clark and Michael McCracken

No 2007-41, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Small-scale VARs are widely used in macroeconomics for forecasting U.S. output, prices, and interest rates. However, recent work suggests these models may exhibit instabilities. As such, a variety of estimation or forecasting methods might be used to improve their forecast accuracy. These include using different observation windows for estimation, intercept correction, time-varying parameters, break dating, Bayesian shrinkage, model averaging, etc. This paper compares the effectiveness of such methods in real time forecasting. We use forecasts from univariate time series models, the Survey of Professional Forecasters and the Federal Reserve Board's Greenbook as benchmarks.

Keywords: Economic forecasting; Real-time data; Econometric models (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for and nep-mac
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Citations: View citations in EconPapers (16)

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