Macroeconomic Forecasting and Structural Change

Antonello D'Agostino (), Luca Gambetti and Domenico Giannone ()

No 2009_020, ECARES Working Papers from Université Libre de Bruxelles, Ecares

Abstract: The aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts. We produce real time out-of-sample forecasts for inflation, the unemployment rate and the interest rate using a Time-Varying Coe±cients VAR with Stochastic Volatility (TV-VAR) for the US. The model generates accurate predictions for the three variables. In particular for inflation the TV-VAR outperforms, in terms of mean square forecast error, all the competing models: fixed coefficients VARs, Time-Varying ARs and the naaive random walk model. These results are also shown to hold over the most recent period in which it has been hard to forecast inflation.

Keywords: Forecasting; infation; stochastic Volatility; time varying vector autoregression. (search for similar items in EconPapers)
JEL-codes: C32 E37 E47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for, nep-mac and nep-ore
Date: 2009
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http://www.ecares.org/index2.php?option=com_docman ... ew&gid=76&Itemid=204 First version, 2009 (application/pdf)

Related works:
Working Paper: Macroeconomic Forecasting and Structural Change (2009)
Working Paper: Macroeconomic Forecasting and Structural Change (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:eca:wpaper:2009_020

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