Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 82:
Money Growth and Inflation: Implications of Reducing the Bias of VAR Estimates

Tomas Brännström

Abstract: A bivariate second-order VAR model of money growth and inflation is specified and estimatedby means of least squares. The bias of the parameter estimates is approximated in three ways and new, bias-reduced estimates are computed using the approximations. The effects of bias reduction on impulse-response functions and variance decompositions are found to be negligible. The effects of bias reduction on predictions, in particular on predicted inflation, are more substantial.

Keywords: Vector autoregressive models; Bias reduction; impulse-response functions; variance decomposition; forecasts; (follow links to similar papers)

JEL-Codes: C32; C53; E37; (follow links to similar papers)

28 pages, November 1995

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