How to Estimate a VAR after March 2020

Michele Lenza and Giorgio Primiceri

No 27771, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper illustrates how to handle a sequence of extreme observations—such as those recorded during the COVID-19 pandemic—when estimating a Vector Autoregression, which is the most popular time-series model in macroeconomics. Our results show that the ad-hoc strategy of dropping these observations may be acceptable for the purpose of parameter estimation. However, disregarding these recent data is inappropriate for forecasting the future evolution of the economy, because it vastly underestimates uncertainty.

JEL-codes: C11 C32 E32 E37 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-for and nep-mac
Note: EFG ME TWP
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Citations: View citations in EconPapers (141)

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Working Paper: How to Estimate a VAR after March 2020 (2020)
Working Paper: How to estimate a VAR after March 2020 (2020)
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