Since these regimes can differ in all of the model’s parameters, the model allows for regime-dependent shock propagation processes and heteroscedasticity. Moreover, the T-VAR facilitates the possibility of two distinct regimes, which can be interpreted as high and low uncertainty regimes. This model allows to directly link the nonlinearity to the threshold variable, which in my application is the uncertainty index mentioned above. To this end, I employ a threshold BVAR (T-VAR) that accounts for nonlinear relations between macroeconomic uncertainty and the real economy. Second, I investigate whether allowing for nonlinearity improves forecast accuracy relative to standard, linear models. The impact of economic uncertainty on forecast performance is assessed by adding a recursively estimated version of the macroeconomic uncertainty index of Jurado, Ludvigson, and Ng (2015) to a medium-sized dataset of macroeconomic indicators for the US. I derive the baseline results using the large Bayesian VAR (BVAR) approach introduced by Bańbura, Giannone, and Reichlin (2010). First, I assess the predictive power of uncertainty in a linear model. This paper explores the link between economic uncertainty and forecast performance, making two contributions to the literature. While a great deal of the literature focuses on structural analysis of fluctuations in uncertainty, evidence regarding the impact of uncertainty on forecast performance is, however, rather sparse. On the other hand, the magnitude of the variables’ response to the uncertainty shock depends on the shock’s sign Foerster 2014 Jones and Enders 2016. On the one hand, uncertainty shocks induce stronger effects during recessionary episodes or in times of financial distress (see, for instance, Alessandri and Mumtaz 2019 Caggiano, Castelnuovo, and Groshenny 2014 Ferrera and Guérin 2018). Moreover, recent studies show that uncertainty shocks have nonlinear effects. Since the seminal contribution of Bloom (2009), the contractive effects of uncertainty shocks on the real economy are uncontroversial.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |