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Forecasting and conditional projection using realistic prior distribution
This paper develops a forecasting procedure based on a Bayesian method for estimating vector autoregressions. We apply the procedure to 10 macroeconomic variables and show that it produces more accurate out-of-sample forecasts than univariate equations do. Although cross-variable responses are damped by the prior, our estimates capture considerable interaction among the variables. ; We provide unconditional forecasts as of 1982:12 and 1983:3. We also describe how a model such as this can be used to make conditional projections and analyze policy alternatives. As an example, we analyze a ...
Conference Paper
Improving monetary policy models
Working Paper
Bayesian methods for dynamic multivariate models
If multivariate dynamic models are to be used to guide decision-making, it is important that it be possible to provide probability assessments of their results. Bayesian VAR models in the existing literature have not commonly (in fact, not at all as far as we know) been presented with error bands around forecasts or policy projections based on the posterior distribution. In this paper we show that it is possible to introduce prior information in both reduced form and structural VAR models without introducing substantial new computational burdens. With our approach, identified VAR analysis of ...
Journal Article
Inflation and growth - commentary
Conference Paper
Inflation and growth - commentary
Discussion Paper
Understanding unit rooters: a helicopter tour
Discussion Paper
Solving nonlinear stochastic optimization and equilibrium problems backwards
In a stochastic equilibrium model some stochastic processes are usually exogenously given, while others are either chosen optimally by agents or emerge from market equilibrium conditions. When we simulate such a model, often we aim at studying the relations among variables in the model as we vary parameters of policy and of behavior of economic agents. We are no more certain (indeed often less certain) of what is reasonable or interesting behavior for the exogenous variables (some of which may be unobservable) than of the variables chosen by agents or fixed in markets. It turns out that if we ...
Report
When does a central bank’s balance sheet require fiscal support?
Using a simple general equilibrium model, we argue that it would be appropriate for a central bank with a large balance sheet composed of long-duration nominal assets to have access to, and be willing to ask for, support for its balance sheet by the fiscal authority. Otherwise its ability to control inflation may be at risk. This need for balance sheet support?a within-government transaction?is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank?s balance sheet is merged with that of the rest of the government.