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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 Dec 23, 2020, 10:27 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 can be found here (longer talk, including ELB results) or here (shorter talk).

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).