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We examine reduced\u2010form \u201cshadow rate VARs\u201d that model interest rates as censored observations of a latent shadow rate process and develop an efficient Bayesian estimation algorithm that accommodates large models. When compared to a standard VAR, our better\u2010performing shadow rate VARs generate superior predictions for interest rates and broadly similar predictions for macroeconomic variables. We obtain this result for shadow rate VARs in which the federal funds rate is the only interest rate and in models including additional interest rates. Our shadow rate VARs also deliver notable gains in forecast accuracy relative to a VAR that omits shorter\u2010term interest rate data in order to avoid modeling the lower bound.<\/jats:p>","DOI":"10.3982\/qe2547","type":"journal-article","created":{"date-parts":[[2025,7,25]],"date-time":"2025-07-25T08:54:29Z","timestamp":1753433669000},"page":"795-822","source":"Crossref","is-referenced-by-count":4,"title":["Forecasting with shadow rate VARs"],"prefix":"10.3982","volume":"16","author":[{"given":"Andrea","family":"Carriero","sequence":"first","affiliation":[{"name":"School of Economics and Finance, Queen Mary University of London"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Todd E.","family":"Clark","sequence":"additional","affiliation":[{"name":"Research Department, Federal Reserve Bank of Cleveland"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Massimiliano","family":"Marcellino","sequence":"additional","affiliation":[{"name":"Department of Economics, Baffi, Bidsa, IGIER, Bocconi University and CEPR"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Elmar","family":"Mertens","sequence":"additional","affiliation":[{"name":"Research Centre, Deutsche Bundesbank"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"2359","published-online":{"date-parts":[[2025]]},"reference":[{"key":"quan200380-bib-0001","doi-asserted-by":"crossref","first-page":"96","DOI":"10.1016\/j.red.2020.12.003","volume":"41","author":"Aruoba","year":"2021","journal-title":"Review of Economic Dynamics"},{"issue":"2","key":"quan200380-bib-0002","doi-asserted-by":"crossref","first-page":"477","DOI":"10.1016\/j.jeconom.2021.07.013","volume":"231","author":"Aruoba","year":"2022","journal-title":"Journal of Econometrics"},{"issue":"7","key":"quan200380-bib-0003","doi-asserted-by":"crossref","first-page":"1439","DOI":"10.1111\/jmcb.12338","volume":"48","author":"Bauer","year":"2016","journal-title":"Journal of Money, Credit and Banking"},{"issue":"2","key":"quan200380-bib-0004","doi-asserted-by":"crossref","DOI":"10.1515\/snde-2017-0098","volume":"24","author":"B\u00e4urle","year":"2020","journal-title":"Studies in Nonlinear Dynamics & Econometrics"},{"issue":"5","key":"quan200380-bib-0005","doi-asserted-by":"crossref","first-page":"1371","DOI":"10.1111\/j.1540-6261.1995.tb05182.x","volume":"50","author":"Black","year":"1995","journal-title":"The Journal of Finance"},{"issue":"2","key":"quan200380-bib-0006","doi-asserted-by":"crossref","first-page":"506","DOI":"10.1016\/j.jeconom.2021.11.010","volume":"227","author":"Carriero","year":"2022","journal-title":"Journal of Econometrics"},{"issue":"1","key":"quan200380-bib-0007","doi-asserted-by":"crossref","first-page":"137","DOI":"10.1016\/j.jeconom.2019.04.024","volume":"212","author":"Carriero","year":"2019","journal-title":"Journal of Econometrics"},{"issue":"5","key":"quan200380-bib-0008","doi-asserted-by":"crossref","first-page":"495","DOI":"10.1002\/jae.2828","volume":"36","author":"Carriero","year":"2021","journal-title":"Journal of Applied Econometrics"},{"key":"quan200380-bib-0009","doi-asserted-by":"crossref","unstructured":"Carriero, Andrea, Todd E. 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