Choosing variables in macroeconomic modelling

Marek Jarociński and Bartosz Maćkowiak

Research Bulletin, 2014, vol. 20, 5-8

Abstract: An important challenge when formulating an econometric time series model in a data-rich environment is the question of how to choose the variables to put in the model. Recent research has developed a simple methodology to choose variables in vector autoregressions. Applying this methodology to euro area data shows that a modeller interested in tracking the price level, real GDP and the short-term nominal interest rate should pay close attention to survey-based indicators of economic sentiment and activity, changes in inventories and interest rate spreads. JEL Classification: C32, C52, E32

Keywords: vector autoregression; Granger-causal-priority; Granger-noncausality; Bayesian model choice (search for similar items in EconPapers)
Date: 2014-01
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