| Abstract: | This article applies the Bayesian Vector Auto-Regressive (BVAR) model to key economic aggregates of the EU-7, consisting of the former narrow-band ERM members plus Austria, and the EU-14. This model appears to be useful as an additional forecasting tool besides structural macroeconomic models, as is shown both by absolute forecasting performance and by a comparison of ex-post BVAR forecasts with forecasts by the OECD. A comparison of the aggregate models to single-country models reveals that pooling has a strong impact on forecast errors. If forecast errors are interpreted as shocks, shocks appear to be—at least in part—asymmetric, or countries react differently to shocks. © 1998 John Wiley & Sons, Ltd. |
