Structural scenario analysis with SVARs

Juan Antolin-Diaz, Ivan Petrella and Juan F Rubio-Ramirez

Journal of Monetary Economics, 2021, vol. 117, issue C, 798-815

Abstract: Macroeconomists constructing conditional forecasts often face a choice between taking a stand on the details of a fully-specified structural model or relying on correlations from VARs and remaining silent about underlying causal mechanisms. This paper develops tools for constructing economically meaningful scenarios with structural VARs, and proposes a metric to assess and compare their plausibility. We provide a unified treatment of conditional forecasting and structural scenario analysis, relating them to entropic tilting. A careful treatment of uncertainty makes our methods suitable for density forecasting and risk assessment. Two applications illustrate our methods: assessing interest-rate forward guidance and stress-testing bank profitability.

Keywords: Conditional forecasts; SVARs; Bayesian methods; Forward guidance; Stress testing (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (40)

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Working Paper: Structural Scenario Analysis with SVARs (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:798-815

DOI: 10.1016/j.jmoneco.2020.06.001

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