Abstract:
This paper utilizes the recently developed methods of compressing the parameters and the data for a high-dimensional vector autoregression (VAR) to forecast economic policy uncertainty (EPU) of Brazil, China, India and Russia (BRIC) based on EPUs of additional 18 developed and developing countries. In line with the recent literature on spillover of EPUs across countries, we show that incorporating information of EPUs of other countries does indeed produce gains in forecasting the EPU of the BRIC bloc, irrespective of whether we compress the parameters or the data.
