Handbook of Economic Forecasting

Chapter 15

Forecasting with Bayesian Vector Autoregression

Sune Karlsson,     Department of Statistics, Örebro University School of Business, Örebro University

Abstract

This chapter reviews Bayesian methods for inference and forecasting with VAR models. Bayesian inference and, by extension, forecasting depends on numerical methods for simulating from the posterior distribution of the parameters and special attention is given to the implementation of the simulation algorithm.

Keywords

Markov chain Monte Carlo; Structural VAR; Cointegration; Conditional forecasts; Time-varying parameters; Stochastic volatility; Model selection; Large VAR

1 Introduction

Vector autoregressions (VARs) have become the workhorse model for macroeconomic forecasting. ...