Evaluating Real-Time VAR Forecasts with an Informative Democratic Prior

33 Pages Posted: 10 Jun 2010

See all articles by Jonathan H. Wright

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Date Written: May 19, 2010

Abstract

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.

Suggested Citation

Wright, Jonathan H., Evaluating Real-Time VAR Forecasts with an Informative Democratic Prior (May 19, 2010). FRB of Philadelphia Working Paper No. 10-19, Available at SSRN: https://ssrn.com/abstract=1622826 or http://dx.doi.org/10.2139/ssrn.1622826

Jonathan H. Wright (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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