Forecasting Based On Open Var Model

by Pecican, Eugen St.
Published in Romanian Journal of Economic Forecasting
, 2010, volume 13 issue 1, 59-69

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Considering as a starting point certain advantages and limits of the VAR model, we propose an opening to include some approaches suggested particularly by economic theory, such as economic policy role and that concerning corrections applied to restore an equilibrium state or a forecast error. In order to improve the forecasting quality we introduced in the VAR model certain variables that express previous approaches. The open VAR model was applied to short-time prognoses regarding the main prices in economy (consumer price index, exchange rate, monthly wage, interest rate).

Keywords: interdependence, autoregressive, simultaneous equations model, structural form, reduce form, lagged variables, error correction, test, ex-post forecast, system, intercept parameter, qualitative variable
JEL Classification: C32, C53