Download This PaperAveraging Forecasts from Vars with Uncertain Instabilities
FRB of Kansas City Working Paper No. 06-12
FEDS Working Paper No. 2007-42
FRB of St. Louis Working Paper 2008-030B
25 Pages Posted: 28 Dec 2006
Date Written: October 2009
Abstract
Recent work suggests VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. The uncertainty inherent in any single representation of instability could mean that combining forecasts from a range of approaches will improve forecast accuracy. Focusing on models of U.S. output, prices, and interest rates, this paper examines the effectiveness of combining various models of instability in improving VAR forecasts made with real-time data.
Keywords: Forecast combination, real-time data, structural change
JEL Classification: C53, E37, C32
Suggested Citation: Suggested Citation
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