A BVAR Forecasting Model for the Chilean Economy

Authors

  • Richard M. Todd Research Department Federal Reserve Bank of Minneapolis image/svg+xml
  • Felipe Morandé Graduate Program in Economics ILADES/Georgetown University

Keywords:

BVAR, forecasting, Chilean economy, vector autoregression, macroeconomic forecasting, DLS method

Abstract

Doan, Litterman, and Sims have described a method for estimating Bayesian vector autoregressive (BVAR) forecasting models. The method has been successfully applied to the U.S. macroeconomic dataset, which is relatively long and stable. Despite the brevity and volatility of the post-1976 Chilean macroeconomic dataset, this paper shows that a straightforward application of the DLS method to this dataset, with simple modification to allow for delays in the release of data, also appears to satisfy at least one criterion of relative forecasting accuracy suggested by Doan, Litterman, and Sims. However, the forecast errors of the Chilean BVARs are still large in absolute terms. Also, the model's coefficients change sharply in periods marked by policy shifts, such as the floating of the peso in 1982.

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References

Christiano, L. J., & Eichenbaum, M. (1987). Temporal aggregation and structural inference in macroeconomics. Carnegie-Rochester Conference Series on Public Policy, 26, 63–130. https://doi.org/10.1016/0167-2231(87)90022-4

Doan, T. A., & Litterman, R. B. (1986). User's manual, RATS version 2.00. VAR Econometrics.

Doan, T. A., Litterman, R. B., & Sims, C. A. (1984). Forecasting and conditional projection using realistic prior distributions. Econometric Reviews, 3(1), 1–100. https://doi.org/10.1080/07474938408800053

Litterman, R. B. (1986). Forecasting with Bayesian vector autoregressions: Five years of experience. Journal of Business & Economic Statistics, 4(1), 25–38. https://doi.org/10.2307/1391384

McNees, S. K. (1986). Forecasting accuracy of alternative techniques: A comparison of U.S. macroeconomic forecasts. Journal of Business & Economic Statistics, 4(1), 5–15.

Runkle, D. E. (1987). Vector autoregressions and reality. Journal of Business & Economic Statistics, 5(4), 437–442.

Sims, C. A. (1986). BAYESMITH: A program for multivariate Bayesian interpolation (Discussion Paper N.º 234). Center for Economic Research, University of Minnesota.

Sims, C. A. (1987). A rational expectations framework for short-run policy analysis. In W. A. Barnett & K. J. Singleton (Eds.), New approaches to monetary economics. Cambridge University Press.

Working, H. (1960). Note on the correlation of first differences of averages in a random chain. Econometrica, 28(4), 916–918.

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Published

1988-10-31

How to Cite

Todd, R. M., & Morandé, F. (1988). A BVAR Forecasting Model for the Chilean Economy. Economic Analysis Review, 3(2), 45–78. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/285

Issue

Vol. 3 No. 2 (1988)

Section

Articles

License

Copyright (c) 1988 Richard M. Todd, Felipe Morandé

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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