Priors for the Long Run

Giorgio Primiceri, Domenico Giannone and Michele Lenza

No 11261, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a class of prior distributions that discipline the long-run behavior of Vector Autoregressions (VARs). These priors can be naturally elicited using economic theory, which provides guidance on the joint dynamics of macroeconomic time series in the long run. Our priors for the long run are conjugate, and can thus be easily implemented using dummy observations and combined with other popular priors. In VARs with standard macroeconomic variables, a prior based on the long-run predictions of a wide class of dynamic stochastic general equilibrium models yields substantial improvements in the forecasting performance.

Date: 2016-05
New Economics Papers: this item is included in nep-ets and nep-pr~
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Priors for the Long Run (2019)
Working Paper: Priors for the long run (2018)
Working Paper: Priors for the long run (2017)
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