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Large Bayesian vector auto agressions

Journal

Journal of Applied Econometrics

Subject

Economics

Authors / Editors

Reichlin L;Banbura M;Giannone D

Publication Year

2010

Abstract

This paper shows that vector auto regression (VAR) with Bayesian shrinkage is an appropriate tool for large dynamic models. We build on the results of De Mol and co-workers (2008) and show that, when the degree of shrinkage is set in relation to the cross-sectional dimension, the forecasting performance of small monetary VARs can be improved by adding additional macroeconomic variables and sectoral information. In addition, we show that large VARs with shrinkage produce credible impulse responses and are suitable for structural analysis.

Available on ECCH

No


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