EVALUATING REAL-TIME VAR FORECASTS WITH AN INFORMATIVE DEMOCRATIC PRIOR
Version of Record online: 8 MAR 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 28, Issue 5, pages 762–776, August 2013
How to Cite
Wright, J. H. (2013), EVALUATING REAL-TIME VAR FORECASTS WITH AN INFORMATIVE DEMOCRATIC PRIOR. J. Appl. Econ., 28: 762–776. doi: 10.1002/jae.2268
- Issue online: 29 JUL 2013
- Version of Record online: 8 MAR 2012
- Manuscript Revised: 12 JAN 2012
- Manuscript Received: 27 MAY 2010
This paper proposes Bayesian forecasting in a vector autoregression using a democratic prior. This prior is chosen to match the predictions of survey respondents. In particular, the unconditional mean for each series in the vector autoregression is centered around long-horizon survey forecasts. Heavy shrinkage toward the democratic prior is found to give good real-time predictions of a range of macroeconomic variables, as these survey projections are good at quickly capturing endpoint shifts. Copyright © 2012 John Wiley & Sons, Ltd.