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Title: BVAR models in short-term prediction of modern central banks: empirical evidence of the euro area

Authors: Aleksandra Nocoń

Addresses: Department of Banking and Financial Markets, College of Finance, University of Economics in Katowice, 1 Maja 50, 40-287 Katowice, Poland ORCID: 0000-0003-3250-2382

Abstract: It has been more than a decade since central banks, in the face of the global financial crisis, implemented unconventional initiatives. Monetary authorities' actions have led to a reduction of main interest rates to historically low levels and huge expansion of central banks' balance sheet. So far, they still have not returned to the pre-crisis framework and implemented the normalisation process. Nowadays, there is observed a trend to use econometric models in monetary policy to forecast macroeconomic variables and plan normalising activities. The main aim of the study is empirical verification of BVAR model in short-term predicting, that might be used by the European Central Bank in its normalisation process. The conducted research indicate that the large BVAR model for the Eurozone has a significant predictive value in short-term forecasting. At the same time indicating its considerable precision and accuracy in prediction, with a high degree of objectivity and flexibility.

Keywords: normalisation process; central bank; BVAR model; European Central Bank; euro area; prediction; forecasting.

DOI: 10.1504/IJMEF.2020.10029689

International Journal of Monetary Economics and Finance, 2021 Vol.14 No.1, pp.54 - 68

Received: 31 Oct 2019
Accepted: 28 Feb 2020

Published online: 26 Feb 2021 *

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