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VARs in 2020: outliers, the economic effects of uncertainty, and interest rates at the lower bound

posted Nov 23, 2020, 5:47 AM by Elmar Mertens   [ updated Jun 10, 2021, 9:09 AM ]
The effects of COVID-19 have generated remarkable movements in macroeconomic and financial data in 2020. Amongst others, these extreme observations have potentially strong effects on conventional VAR estimates, commonly used for macro forecasting. In addition, these swings raise important questions for measuring macroeconomic and financial uncertainty and their effects on the economy. Finally, short- and longer-term interest rates are (back) at their effective lower bound (ELB).  Together with Andrea Carriero, Massimiliano Marcellino, and Todd Clark, I am working on a few projects related to these questions. 

  • A set of slides summarizing some of our results on shadow-rate VARs at the ELB, outliers, measuring uncertainty and its effects on the economy can be found here.  
  • A shorter version, summarizing our work on forecasting with shadow-rate VARs is here.
  • A shorter version, summarizing our work on handling COVID-19 outliers in VARs is here

Draft papers:
  • The shadow-rate paper is available here.
  • The working paper version of our work on measuring uncertainty and its effects in 2020 can be found here
  • A draft of our paper on handling outliers in BVAR is here (supplement). Revised May 2021.