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A Bayesian VAR benchmark for COMPASS

Sílvia Domit (), Francesca Monti () and Andrej Sokol ()
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Sílvia Domit: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 583, Bank of England working papers from Bank of England

Abstract: We estimate a Bayesian VAR analogue to the Bank of England’s DSGE model (COMPASS) and assess their relative performance in forecasting GDP growth and CPI inflation in real time between 2000 and 2012. We find that the BVAR outperformed COMPASS when forecasting both GDP and its expenditure components. In contrast, the performance of these models was similar when forecasting CPI. We also find that, despite underpredicting inflation at most forecast horizons, the BVAR density forecasts outperformed those of COMPASS. Both models overpredicted GDP growth at all forecast horizons, but the BVAR outperformed COMPASS at forecast horizons up to one year ahead. The BVAR’s point and density forecast performance is also comparable to that of a Bank of England in-house statistical suite for both GDP and CPI inflation and to the Inflation Report projections. Our results are broadly consistent with the findings of similar studies for other advanced economies.

Keywords: Forecasting; Bayesian VARs; macro-modelling (search for similar items in EconPapers)
JEL-codes: C53 E12 E17 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016-01-25
New Economics Papers: this item is included in nep-ets, nep-for and nep-mac
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