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The Limited Usefulness of Macroeconomic Bayesian VARs when Forecasting the Probability of a US Recession
Monetary Policy Department, Sveriges Riksbank, Sweden.ORCID iD: 0000-0002-4840-7649
2012 (English)In: Journal of macroeconomics, ISSN 0164-0704, E-ISSN 1873-152X, Vol. 34, no 1, 76-86 p.Article in journal (Refereed) Published
Abstract [en]

The Bayesian VAR model provides a convenient tool for generating predictive densities and making probability statements regarding the future development of economic variables. This paper investigates the usefulness of standard macroeconomic Bayesian VAR models to estimate the probability of a US recession. Defining a recession as two quarters in a row of negative GDP growth, the probability is estimated for two quarters of the most recent US recession, namely 2008Q3–2008Q4. In contrast to judgemental probabilities from this point in time, it is found that the BVAR assigns a very low probability to such an event. This is true also when survey data, which generally are considered as good leading indicators, are included in the models. We conclude that while Bayesian VAR models are good forecasting tools in many cases, the results in this paper raise question marks regarding their usefulness for predicting recessions.

Place, publisher, year, edition, pages
Elsevier, 2012. Vol. 34, no 1, 76-86 p.
Keyword [en]
Predictive density, Fan chart, Leading indicator, Survey data
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-58333DOI: 10.1016/j.jmacro.2011.10.002ISI: 000302046600008Scopus ID: 2-s2.0-84857444451OAI: oai:DiVA.org:oru-58333DiVA: diva2:1116729
Available from: 2017-06-27 Created: 2017-06-27 Last updated: 2017-07-25Bibliographically approved

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Österholm, Pär
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CiteExportLink to record
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Citation style
  • apa
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