Bayesian comparison of production function-based and time-series GDP models

A purely Bayesian vector autoregression (VAR) framework is proposed to formulate and compare tri-variate models for the logs of the economy-wide aggregates of output and inputs (physical capital and labour). The framework is derived based on the theory of the aggregate production function, but at the same time, accounts for the dynamic properties of macroeconomic data, which makes it particularly appealing for modelling GDP. Next, using the...