Real-Time Forecasting with a MIDAS VAR

34 Pages Posted: 15 Apr 2015

See all articles by Heiner Mikosch

Heiner Mikosch

KOF Swiss Economic Institute

Stefan Neuwirth

ETH Zurich - KOF Swiss Economic Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 13, 2015

Abstract

This paper presents a MIDAS type mixed frequency VAR forecasting model. First, we propose a general and compact mixed frequency VAR framework using a stacked vector approach. Second, we integrate the mixed frequency VAR with a MIDAS type Almon lag polynomial scheme which is designed to reduce the parameter space while keeping models flexible. We show how to recast the resulting non-linear MIDAS type mixed frequency VAR into a linear equation system that can be easily estimated. A pseudo out-of-sample forecasting exercise with US real-time data yields that the mixed frequency VAR substantially improves predictive accuracy upon a standard VAR for different VAR specifications. Forecast errors for, e.g., GDP growth decrease by 30 to 60 percent for forecast horizons up to six months and by around 20 percent for a forecast horizon of one year.

Keywords: Forecasting, mixed frequency data, MIDAS, VAR, real time

JEL Classification: C53, E27

Suggested Citation

Mikosch, Heiner and Neuwirth, Stefan, Real-Time Forecasting with a MIDAS VAR (April 13, 2015). BOFIT Discussion Paper No. 13/2015. Available at SSRN: https://ssrn.com/abstract=2593796 or http://dx.doi.org/10.2139/ssrn.2593796

Heiner Mikosch (Contact Author)

KOF Swiss Economic Institute ( email )

Weinbergstrasse 35
Zurich, CH-8092
Switzerland

Stefan Neuwirth

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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