Macroeconomic forecasting using BVARs. Book chapter
with F. Huber and G. Koop, in Handbook of Macroeconomic Forecasting, edited by Mike Clements and Ana Galvão, 202x.
Abstract. This chapter describes Bayesian methods for macroeconomic forecasting using VARs. It covers various priors which have been proposed to achieve the shrinkage and parsimony that is necessary when working with large VARs in different ways. After discussing different conjugate priors and their properties, various non-conjugate priors are proposed including variable selection and global-local shrinkage priors which automatically achieve shrinkage with minimal subjective prior input. A density forecasting exercise using US macroeconomic data illustrates how these methods are implemented in practice as well as their usefulness for forecasting.