Conditional Forecasts in Large Bayesian VARs with Multiple Equality and Inequality Constraints *

43 Pages Posted: 16 Feb 2023

See all articles by Joshua CC Chan

Joshua CC Chan

Purdue University

Davide Pettenuzzo

Brandeis University - International Business School

Aubrey Poon

University of Kent - School of Economics

Dan Zhu

Monash University - Department of Econometrics & Business Statistics

Date Written: July 01, 2024

Abstract

Conditional forecasts, i.e. projections of a set of variables of interest on the future paths of some other variables, are used routinely by empirical macroeconomists in a number of applied settings. In spite of this, the existing algorithms used to generate conditional forecasts tend to be very computationally intensive, especially when working with large Vector Autoregressions or when multiple linear equality and inequality constraints are imposed at once. We introduce a novel precision-based sampler that is fast, scales well, and yields conditional forecasts from linear equality and inequality constraints. We show in a simulation study that the proposed method produces forecasts that are identical to those from the existing algorithms but in a fraction of the time. We then illustrate the performance of our method in a large Bayesian Vector Autoregression where we simultaneously impose a mix of linear equality and inequality constraints on the future trajectories of key US macroeconomic indicators over the 2020-2022 period.

Keywords: precision-based method, conditional forecast, vector autoregression JEL classification: C11, C32, C51

JEL Classification: C11, C32, C51

Suggested Citation

Chan, Joshua CC and Pettenuzzo, Davide and Poon, Aubrey and Zhu, Dan, Conditional Forecasts in Large Bayesian VARs with Multiple Equality and Inequality Constraints * (July 01, 2024). Available at SSRN: https://ssrn.com/abstract=4358152 or http://dx.doi.org/10.2139/ssrn.4358152

Joshua CC Chan

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47906
United States

Davide Pettenuzzo (Contact Author)

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

Aubrey Poon

University of Kent - School of Economics ( email )

CT2 7NP
United Kingdom

Dan Zhu

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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