Using Global VAR Models for Scenario-based Forecasting and Policy Analysis
Research output: Chapter in Book/Report/Conference proceeding › Chapter (peer-reviewed) › peer-review
Title of host publication | The GVAR Handbook |
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Date | Published - 2013 |
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Pages | 97-113 |
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Publisher | Oxford University Press |
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Place of Publication | Oxford |
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Editors | Hashem Pesaran, Filippo di Mauro |
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Original language | English |
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ISBN (Print) | 978-0-19-967008-6 |
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This chapter demonstrates the usefulness of the GVAR modelling framework as a tool for scenario-based forecasting and counterfactual analysis. Working with the GVAR model developed by Greenwood-Nimmo, Nguyen and Shin (2010, J. Appl. Econometrics), we fi…rst show how probabilistic forecasting can be applied to the analysis of global imbalances. Probabilistic forecasting involves evaluating the conditional probability of a given event or combination of events over a defi…ned horizon by means of model-based simulations. To demonstrate the usefulness of this approach, we develop a simple four-way probabilistic classifi…catory system built around the notions of balancing improvement in the trade balance, unbalancing improvement, balancing deterioration and unbalancing deterioration.
We then extend a similar approach in a counterfactual context by constructing a range of scenarios as linear combinations of generalised impulse responses. We conclude that GVAR models are particularly well-suited to scenario-based analyses such as ours as they have the potential to analyse singularly rich datasets that allow the modeler to construct a wide range of policy-relevant scenarios.
- Global VAR, Scenario-Based Forecasting and Analysis, Global Imbalances.
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