A small labour market model for the six largest euro-area countries (Germany, France, Italy, Spain, the Netherlands and Belgium) is estimated in a state space framework. The model entails, in the long run, four driving forces: trend labour force, trend labour productivity, long-run inflation...

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We show that the adaptive Lasso (aLasso) and the adaptive group Lasso (agLasso) are oracle efficient in stationary vector autoregressions where the number of parameters per equation is smaller than the number of observations. In particular, this means that the parameters are estimated...

Small or medium-scale VARs are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism. This requires the VAR parameters to be stable over the evaluation and forecast sample, or to explicitly consider parameter time variation. The earlier...

A recent debate in the forecasting literature revolves around the inability of macroecono-metric models to improve on simple univariate predictors, since the onset of the so-called Great Moderation. This paper explores the consequences of equilibrium indeterminacy for quantitative forecasting...

In 2007, a new indicator of economic activity for Luxembourg was elaborated at the BcL. It was developed using a large dataset of about 100 economic and financial time series. The methodology was based on the generalized dynamic-factor models, and the model was estimated over the period from...

Bayesian inference requires an analyst to set priors. Setting the right prior is crucial for precise forecasts. This paper analyzes how optimal prior changes when an economy is hit by a recession. For this task, an autoregressive distributed lag (ADL) model is chosen. The results show that a...