Riksbank paper finds BVAR models can outperform DSGE
Forecasting with Bayesian vector autoregressions often produces better results
Bayesian vector autoregression (BVAR) models perform well for forecasting many variables, and tend to outperform other options, according to a working paper published this month by Sweden's central bank, Sveriges Riksbank.
Jens Iversen, Stefan Laséen, Henrik Lundvall and Ulf Söderström test various methods for forecasting used by the Riksbank, namely BVAR, dynamic stochastic general equilibrium (DSGE), and models augmented with less formal judgements - which are typically the ones made public
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