Macroeconomic and credit forecasts during the Greek crisis using Bayesian VARs

Dimitrios Louzis

Empirical Economics, 2017, vol. 53, issue 2, No 8, 569-598

Abstract: Abstract We investigate the ability of small- and medium-scale Bayesian VARs (BVARs) to produce accurate macroeconomic (output and inflation) and credit (loans and lending rate) out-of-sample forecasts during the latest Greek crisis. We implement recently proposed Bayesian shrinkage techniques based on Bayesian hierarchical modeling, and we evaluate the information content of forty-two (42) monthly macroeconomic and financial variables in terms of point and density forecasting. Alternative competing models employed in the study include Bayesian autoregressions (BARs) and time-varying parameter VARs with stochastic volatility, among others. The empirical results reveal that, overall, medium-scale BVARs enriched with economy-wide variables can considerably and consistently improve short-term inflation forecasts. The information content of financial variables, on the other hand, proves to be beneficial for the lending rate density forecasts across forecasting horizons. Both of the above-mentioned results are robust to alternative specification choices, while for the rest of the variables smaller-scale BVARs, or even univariate BARs, produce superior forecasts. Finally, we find that the popular, data-driven, shrinkage methods produce, on average, inferior forecasts compared to the theoretically grounded method considered here.

Keywords: Forecasting; Bayesian VARs; Crisis; Financial variables (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-016-1128-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1128-y

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-016-1128-y

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().