Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 181: Inference in Vector Autoregressive Models with an Informative Prior on the Steady State
Mattias Villani ()
Additional contact information
Mattias Villani: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Vector autoregressions have steadily gained in popularity since their introduction in econometrics 25 years ago. A drawback of the otherwise fairly well developed methodology is the inability to incorporate prior beliefs regarding the system's steady state in a satisfactory way. Such prior information are typically readily available and may be crucial for forecasts at long horizons. This paper develops easily implemented numerical simulation algorithms for analyzing stationary and cointegrated VARs in a parametrization where prior beliefs on the steady state may be adequately incorporated. The analysis is illustrated on macroeconomic data for the Euro area.
Keywords: Cointegration; Bayesian inference; Forecasting; Unconditional mean; VARs
22 pages, March 16, 2005
Full text files
WP_181.pdf
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