Structural forecast analysis

Davide Brignone and Michele Piffer
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Davide Brignone: Bank of England
Michele Piffer: Bank of England

No 1165, Bank of England Staff Working Paper series from Bank of England

Abstract: This paper shows how the structural representation of a vector autoregressive (VAR) model can support forecast analysis. We offer a unified framework that formalises how the structural form of the model can help form a narrative for two key statistics in real-time VAR forecasting: the forecast errors relative to the outturn of the data, and the consequent revisions of the forecast. To illustrate the method developed, we conduct a stylised real-time exercise on the UK, focusing on the inflation surge that followed the pandemic. We show that the inflation forecast produced by a four-variable VAR model was revised upwards not only due to contractionary supply-side shocks, but also due to a mix of expansionary demand-side shocks, and a revision in the past shocks.

Keywords: VAR modelling; forecasting; structural shocks; decomposition (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Pages: 46
Date: 2026-01-09
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023287

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