Real-time forecasting of the Australian macroeconomy using flexible Bayesian VARs
Chenghan Hou
Center for Economics, Finance and Management Studies, Hunan University, Changsha, China
Search for more papers by this authorBao Nguyen
Tasmanian School of Business and Economics, University of Tasmania and Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Canberra, Australian Capital Territory, Australia
Search for more papers by this authorCorresponding Author
Bo Zhang
Business School, Wenzhou University, Wenzhou, China
Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Canberra, Australian Capital Territory, Australia
Correspondence
Bo Zhang, Business School, Wenzhou University, Wenzhou, Zhejiang 325035 China.
Email: [email protected]
Search for more papers by this authorChenghan Hou
Center for Economics, Finance and Management Studies, Hunan University, Changsha, China
Search for more papers by this authorBao Nguyen
Tasmanian School of Business and Economics, University of Tasmania and Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Canberra, Australian Capital Territory, Australia
Search for more papers by this authorCorresponding Author
Bo Zhang
Business School, Wenzhou University, Wenzhou, China
Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Canberra, Australian Capital Territory, Australia
Correspondence
Bo Zhang, Business School, Wenzhou University, Wenzhou, Zhejiang 325035 China.
Email: [email protected]
Search for more papers by this authorFunding information: Chenghan Hou would like to acknowledge financial support by the National Natural Science Foundation of China (72003064). Bo Zhang would like to acknowledge financial support by the National Natural Science Foundation of China (72250410372) and the 2022 Philosophy and Social Sciences Research Program of Wenzhou (Project Number 22wsk016).
Abstract
This paper evaluates the real-time forecast performance of alternative Bayesian autoregressive (AR) and vector autoregressive (VAR) models for the Australian macroeconomy. To this end, we construct an updated vintage database and compare the predictive ability of a wide set of specifications that takes into account almost all possible combinations of nonstandard errors existing in the current literature. In general, we find that the models with flexible covariance structures can improve the forecast accuracy as compared with the standard variant. For forecasting GDP, both point and density forecasts consistently suggest small VARs tend to outperform their counterparts while AR models often predict inflation better. With the unemployment rate, large VAR models provide superior forecasts to the alternatives at almost all forecast horizons. The forecasting performance of these models slightly changes when we consider the first, second, and latest-available vintage as actual values, highlighting the importance of using real-time data vintages in forecasting.
Open Research
DATA AVAILABILITY STATEMENT
These data were derived from the following resources available in the public domain: https://fbe.unimelb.edu.au/economics/macrocentre/artmdatabase#databases-and-documentation; https://www.abs.gov.au/ https://www.rba.gov.au/.
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