Probabilistic forecasting of output growth, inflation and the balance of trade in a gvar framework

Abstract

We apply a global vector autoregressive (GVAR) model to the analysis of inflation, output growth and global imbalances among a group of 33 countries (26 regions). We account for structural instability by use of country-specific intercept shifts, the timings of which are identified taking into account both statistical evidence and our knowledge of historic economic conditions and events. Using this model, we compute both central forecasts and scenario-based probabilistic forecasts for a range of events of interest, including the sign and trajectory of the balance of trade, the achievement of a short-term inflation target, and the incidence of recession and slow growth. The forecasting perform..