BVAR models in short-term prediction of modern central banks: empirical evidence of the euro area

Aleksandra Nocoń

International Journal of Monetary Economics and Finance, 2021, vol. 14, issue 1, 54-68

Abstract: It has been more than a decade since central banks, in the face of the global financial crisis, implemented unconventional initiatives. Monetary authorities' actions have led to a reduction of main interest rates to historically low levels and huge expansion of central banks' balance sheet. So far, they still have not returned to the pre-crisis framework and implemented the normalisation process. Nowadays, there is observed a trend to use econometric models in monetary policy to forecast macroeconomic variables and plan normalising activities. The main aim of the study is empirical verification of BVAR model in short-term predicting, that might be used by the European Central Bank in its normalisation process. The conducted research indicate that the large BVAR model for the Eurozone has a significant predictive value in short-term forecasting. At the same time indicating its considerable precision and accuracy in prediction, with a high degree of objectivity and flexibility.

Keywords: normalisation process; central bank; BVAR model; European Central Bank; euro area; prediction; forecasting. (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:14:y:2021:i:1:p:54-68

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