Mind the Gap: A Multi-Country BVAR Benchmark for the Eurosystem Projections

27 Pages Posted: 1 Feb 2019

See all articles by Elena Angelini

Elena Angelini

European Central Bank (ECB)

Magdalena Lalik

European Central Bank

Michele Lenza

European Central Bank (ECB)

Joan Paredes

European Central Bank

Date Written: January 28, 2019

Abstract

The Eurosystem staff forecasts are conditional on the financial markets, the global economy and fiscal policy outlook, and include expert judgement. We develop a multi-country BVAR for the four largest countries of the euro area and we show that it provides accurate conditional forecasts of policy relevant variables such as, for example, consumer prices and GDP. The forecasting accuracy and the ability to mimic the path of the Eurosystem projections suggest that the model is a valid benchmark to assess the consistency of the projections with the conditional assumptions. As such, the BVAR can be used to identify possible sources of judgement, based on the gaps between the Eurosystem projections and the historical regularities captured by the model.

Keywords: multi-country model, cross-checking, conditional forecast, euro area

JEL Classification: C52, C53, E37

Suggested Citation

Angelini, Elena and Lalik, Magdalena and Lenza, Michele and Paredes, Joan, Mind the Gap: A Multi-Country BVAR Benchmark for the Eurosystem Projections (January 28, 2019). ECB Working Paper No. 2227 (2019); ISBN 978-92-899-3489-3 . Available at SSRN: https://ssrn.com/abstract=3324917

Elena Angelini (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 69 1344 7912 (Phone)
44 69 1344 6575 (Fax)

Magdalena Lalik

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Joan Paredes

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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