Working Paper

A Bayesian vector error corrections model of the U.S. economy

Abstract: This paper presents a small-scale macroeconometric time-series model that can be used to generate short-term forecasts for U.S. output, inflation, and the rate of unemployment. Drawing on both the Bayesian VAR and vector error corrections (VEC) literature, the author specifies the baseline model as a Bayesian VEC. The author documents the model's forecasting ability over various periods, examines its impulse responses, and considers several reasonable alternative specifications. Based on a root-mean-square-error criterion, the baseline model works best, and the author concludes that this model holds promise as a workhorse forecasting tool.

Keywords: Forecasting; time series analysis;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 1998

Number: 98-12