A Neural Network-VAR for Long-Term Forecasting: An Application to Monetary Policy Effects in the Euro Area

Diana Barro, Antonella Basso (), Marco Corazza and Guglielmo Alessandro Visentin ()
Additional contact information
Diana Barro: Ca’ Foscari University of Venice
Marco Corazza: Ca’ Foscari University of Venice
Guglielmo Alessandro Visentin: Henley Business School, University of Reading

No 2025: 24, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: We propose a hybrid approach that combines Neural Networks with a Vector Autoregression (VAR) model to generate long-term forecasts of time series. We apply this methodology to forecast the impact of shifts in monetary policies within the Euro area on a comprehensive set of macroeconomic variables. Our analysis begins with a standard (linear) VAR model, which is then enhanced by incorporating Neural Networks to generate long-term forecasts for key variables such as the interest rate, inflation, real output, narrow money, exchange rate, and corporate bond spread. The results suggest that a Neural Network-VAR model offers improvements over the traditional linear VAR for forecasting certain macroeconomic variables in the long run. However, due to the limited sample size, the nonlinear model does not consistently outperform the linear VAR.

Keywords: Forecasting; VAR; Neural Networks; Monetary policies; Euro area (search for similar items in EconPapers)
JEL-codes: C32 C45 C53 E52 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2025
New Economics Papers: this item is included in nep-big, nep-cba, nep-cmp, nep-eec, nep-ets, nep-for, nep-inv and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... a_visentin_24_25.pdf First version, anno (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2025:24

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().