Structural Scenario Analysis with Svars

72 Pages Posted: 16 Jan 2018 Last revised: 10 Jun 2019

See all articles by Juan Antolin-Diaz

Juan Antolin-Diaz

Fulcrum Asset Management

Ivan Petrella

University of Warwick; Centre for Economic Policy Research (CEPR)

Juan Rubio Ramírez

Emory University

Date Written: January 2018

Abstract

Macroeconomists seeking to construct conditional forecasts often face a choice between taking a stand on the details of a fully-specified structural model or to rely on empirical correlations from vector autoregression (VAR) models and remain silent about the underlying causal mechanisms. This paper develops tools for constructing ``structural scenarios'' using identified structural VARs that can be given an economic interpretation. We provide a unified and transparent treatment of conditional forecasting and structural scenario analysis and relate our approach to entropic forecast tilting. We provide for a careful treatment of uncertainty, making the methods suitable for density forecasting and risk assessment. We also propose an approach to assess and compare the plausibility of alternative scenarios. We illustrate our methods with two examples: comparing alternative monetary policy options and stress testing the reaction of bank profitability to an economic recession.

Keywords: Bayesian methods, Conditional forecasts, probability distribution, SVARs

JEL Classification: C32, C53, E47

Suggested Citation

Antolin-Diaz, Juan and Petrella, Ivan and Rubio Ramírez, Juan, Structural Scenario Analysis with Svars (January 2018). CEPR Discussion Paper No. DP12579. Available at SSRN: https://ssrn.com/abstract=3102194

Juan Antolin-Diaz (Contact Author)

Fulcrum Asset Management ( email )

5-7 Chester eld Gardens
London, W1J 5BQ
United Kingdom

Ivan Petrella

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Juan Rubio Ramírez

Emory University ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
2
Abstract Views
301
PlumX Metrics