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Working Paper

A Medium Scale Forecasting Model for Monetary Policy

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This paper presents a 16-variable Bayesian VAR forecasting model of the U.S. economy for use in a monetary policy setting. The variables that comprise the model are selected not only for their effectiveness in forecasting the primary variables of interest, but also for their relevance to the monetary policy process. In particular, the variables largely coincide with those of an augmented New-Keynesian DSGE model. We provide out-of sample forecast evaluations and illustrate the computation and use of predictive densities and fan charts. Although the reduced form model is the focus of the paper, we also provide an example of structural analysis to illustrate the macroeconomic response of a monetary policy shock.
Topics
Monetary policy
10.27.2011ISSN 2573-7953 WP 11-28DOI 10.26509/frbc-wp-201128
Keywords bayesian vector-autoregression, forecasting, monetary policy
JEL Classification Codes C11, C32, C53, E37

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Beauchemin, Kenneth R., and Saeed Zaman. 2011. “A Medium Scale Forecasting Model for Monetary Policy .” Federal Reserve Bank of Cleveland, Working Paper No. 11-28. https://doi.org/10.26509/frbc-wp-201128