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This study proposes (i) an adaptive hierarchical normal\u2010gamma prior on steady states, (ii) a time\u2010varying steady\u2010state specification which accounts for structural breaks in the unconditional mean, and (iii) a generalization of steady\u2010state VARs with fat\u2010tailed and heteroskedastic error terms. Empirical analysis, based on a real\u2010time dataset of 14 macroeconomic variables, shows that, overall, the hierarchical steady\u2010state specifications materially improve out\u2010of\u2010sample forecasting for forecasting horizons longer than 1 year, while the time\u2010varying specifications generate superior forecasts for variables with significant changes in their unconditional mean.<\/jats:p>","DOI":"10.1002\/jae.2657","type":"journal-article","created":{"date-parts":[[2018,9,5]],"date-time":"2018-09-05T07:52:31Z","timestamp":1536133951000},"page":"285-314","update-policy":"https:\/\/doi.org\/10.1002\/crossmark_policy","source":"Crossref","is-referenced-by-count":9,"title":["Steady\u2010state modeling and macroeconomic forecasting quality"],"prefix":"10.1002","volume":"34","author":[{"given":"Dimitrios P.","family":"Louzis","sequence":"first","affiliation":[{"name":"Bank of Greece  Athens Greece"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2018,10,7]]},"reference":[{"issue":"4","key":"e_1_2_10_2_1","first-page":"111","article-title":"Modern forecasting models in action: Improving macroeconomic analyses at central banks","volume":"3","author":"Adolfson M.","year":"2007","journal-title":"International Journal of Central Banking"},{"key":"e_1_2_10_3_1","doi-asserted-by":"publisher","DOI":"10.1080\/07474930701220543"},{"key":"e_1_2_10_4_1","doi-asserted-by":"publisher","DOI":"10.1198\/073500106000000332"},{"key":"e_1_2_10_5_1","doi-asserted-by":"publisher","DOI":"10.1111\/j.1475-4932.2008.00510.x"},{"key":"e_1_2_10_6_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.ijforecast.2009.10.006"},{"key":"e_1_2_10_7_1","doi-asserted-by":"publisher","DOI":"10.1002\/for.2276"},{"key":"e_1_2_10_8_1","doi-asserted-by":"publisher","DOI":"10.1002\/jae.2315"},{"key":"e_1_2_10_9_1","doi-asserted-by":"publisher","DOI":"10.1080\/07350015.2015.1040116"},{"key":"e_1_2_10_10_1","doi-asserted-by":"crossref","unstructured":"Carriero A. 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