Macroeconomic forecasting with a vector arima model: A case study of the finnish economy

The vector ARIMA (VARIMA) model is a multivariate generalization of the univariate ARIMA model. VARIMA can accomodate assumptions on exogeneity and on contemporaneous relationships. Exogeneous forecasts and non-zero future shocks make it possible to generate alternative forecasts. In a case study VARIMA well describes developments in the 1970's and successfully competes with judgemental methods and ARIMA in providing a general outlook of the early 1980's.