A structural Bayesian VAR for model-based fan charts

Pär Österholm

Applied Economics, 2008, vol. 40, issue 12, 1557-1569

Abstract: Inflation forecast uncertainty is of importance for a wide range of agents in the economy, central banks in particular. Ways to describe and account for this uncertainty in a consistent manner have received increasing attention of late, in part due to the growing number of inflation-targeting central banks. This article develops a large structural VAR for the Swedish economy and estimates it in a Bayesian framework. The methodology permits not only structural interpretation and analysis but offers a natural way to formalize forecast uncertainty, as the posterior predictive density from the model has the interpretation of a fan chart.

Date: 2008
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DOI: 10.1080/00036840600843947

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