This article presents a new Qual VAR model for incorporating information from qualitative and/or discrete variables in vector autoregressions. With a Qual VAR, it is possible to create dynamic forecasts of the qualitative variable using standard VAR projections. Previous forecasting methods for qualitative variables, in contrast, only produce static forecasts. I apply the Qual VAR to forecasting the 2001 business recession out of sample and to analyzing the Romer and Romer (1989) narrative

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... re of monetary policy contractions as an endogenous variable in a VAR. Out of sample, the model predicts the timing of the 2001 recession quite well relative to the recession probabilities put forth at the time by professional forecasters. Qual VARs-which include information about the qualitative variable-can also enhance the quality of density forecasts of the other variables in the system. JEL classifications: F42, C25, C22