Chapter 3 Forecasting with Small Macroeconomic VARs in the Presence of Instabilities

Todd Clark and Michael McCracken

A chapter in Forecasting in the Presence of Structural Breaks and Model Uncertainty, 2008, pp 93-147 from Emerald Group Publishing Limited

Abstract: Small-scale VARs are widely used in macroeconomics for forecasting US output, prices, and interest rates. However, recent work suggests these models may exhibit instabilities. As such, a variety of estimation or forecasting methods might be used to improve their forecast accuracy. These include using different observation windows for estimation, intercept correction, time-varying parameters, break dating, Bayesian shrinkage, model averaging, etc. This paper compares the effectiveness of such methods in real-time forecasting. We use forecasts from univariate time series models, the Survey of Professional Forecasters, and the Federal Reserve Board's Greenbook as benchmarks.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:fegzzz:s1574-8715(07)00203-5

DOI: 10.1016/S1574-8715(07)00203-5

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