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Observed Variable Scenario

 

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Compute paths for the observed variables using a DSGE-VAR model when a subset of the variables are restricted to follow a certain path over a sub-sample. Parameter values are given by the initial values, the marginal/joint/DSGE posterior mode values, or a sample from the prior or the posterior distribution.

The scenario variables are linear combinations of the observed variables (current and past) and an initial condition. The potential scenario variables and their relations to the observed variables must be specified in the data construction file in a similar manner as the conditional forecast assumptions are setup. Specifically, the field C is used instead of Z, and CBar instead of U. For additional information, see the file  "DataConstFile.m" which is located in the directory "example\AnSchorfheide" directly below the base directory for YADA.

A subset of the scenario variables can be selected from the select scenario variables function on the Actions menu. The selection of shocks and their connection with the scenario variables can also be selected from this menu, subject to the user determined set of structural shocks that are included in the DSGE-VAR model.

The user can choose between two shock selection methods:

User defined shocks and links to observed variables.
Optimally selected shocks.

The first method means that individual and user selected shocks are manipulated to achieve the scenario assumptions. The second method uses an optimization procedure, where the shocks are selected over the scenario sample such that, subject to the scenario assumptions, the squared deviation from the smooth estimates of the economic shocks based on the actual observed data is minimized.

The observed variable scenarios can under both methods be performed for the variables in their original form or using the annualization data in the data construction file.

 

Additional Information

A more detailed description about observed variable scenarios can also be found in Sections 11.10 and 16.10 of the YADA Manual.

NOTE: Observed variable scenarios are only available in the version of YADA that is exclusive to the Forecasting and Policy Modelling Division within the Directorate General Economics of the European Central Bank. The publicly available version of YADA does not include the code for this tool.

 

 


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