Dynamic forecasts of qualitative variables: a Qual VAR model of U.S. recessions

Michael Dueker

No 2001-012, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This article presents a new Qual VAR model for incorporating information from qualitative and/or discrete variables in vector autoregressions. With a Qual VAR, it is possible to create dynamic forecasts of the qualitative variable using standard VAR projections. Previous forecasting methods for qualitative variables, in contrast, only produce static forecasts. I apply the Qual VAR to forecasting the 2001 business recession out of sample and to analyzing the Romer and Romer (1989) narrative measure of monetary policy contractions as an endogenous variable in a VAR. Out of sample, the model predicts the timing of the 2001 recession quite well relative to the recession probabilities put forth at the time by professional forecasters. Qual VARs -- which include information about the qualitative variable -- can also enhance the quality of density forecasts of the other variables in the system.

Keywords: Forecasting; Recessions; Vector autoregression (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (2)

Published in Journal of Business and Economic Statistics, January 2005, 23(1), pp. 96-104

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Journal Article: Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of U.S. Recessions (2005)
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