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A structural Bayesian VAR for model-based fan charts

Applied Economics , Volume 40 (12): 1557-1569 – Jun 1, 2008

Details

Publisher
Routledge
Copyright
© 2008 Informa plc
Subject
Macroeconomics
ISSN
0003-6846
D.O.I.
10.1080/00036840600843947
Publisher site
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A structural Bayesian VAR for model-based fan charts

Abstract

Inflation forecast uncertainty is of importance for a wide range of agents in the economy, central banks in particular. Ways to describe and account for this uncertainty in a consistent manner have received increasing attention of late, in part due to the growing number of inflation-targeting central banks. This article develops a large structural VAR for the Swedish economy and estimates it in a Bayesian framework. The methodology permits not only structural interpretation and analysis but offers a natural way to formalize forecast uncertainty, as the posterior predictive density from the model has the interpretation of a fan chart.
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