2019/11/20 by Sebastian Ankargren, Ankargren, Sebastian, Måns Unosson +3
Decision Sciences · Economics, Econometrics and Finance · #Econometrics (econ.EM) #FOS: Economics and business #Financial Risk and Volatility Modeling #Forecasting Techniques and Applications #Monetary Policy and Economic Impact
paper · pdf · doi:10.48550/arxiv.1911.09151
openalex created_date 2019/11/01 · openalex publication_date 2019/11/20 · openalex updated_date 2026/07/28
We propose a Bayesian vector autoregressive (VAR) model for mixed-frequency data. Our model is based on the mean-adjusted parametrization of the VAR and allows for an explicit prior on the 'steady states' (unconditional means) of the included variables. Based on recent developments in the literature, we discuss extensions of the model that improve the flexibility of the modeling approach. These extensions include a hierarchical shrinkage prior for the steady-state parameters, and the use of stochastic volatility to model heteroskedasticity. We put the proposed model to use in a forecast evaluation using US data consisting of 10 monthly and 3 quarterly variables. The results show that the predictive ability typically benefits from using mixed-frequency data, and that improvements can be obtained for both monthly and quarterly variables. We also find that the steady-state prior generally enhances the accuracy of the forecasts, and that accounting for heteroskedasticity by means of stochastic volatility usually provides additional improvements, although not for all variables.