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Title: Bayesian VARs with Large Panels

Author(s): Marta Banbura, Domenico Giannone and Lucrezia Reichlin

Publication Date: June 2007

Keyword(s): Bayesian VAR, forecasting, large cross-sections and monetary VAR

Programme Area(s): International Macroeconomics

Abstract: This paper assesses the performance of Bayesian Vector Autoregression (BVAR) for models of different size. We consider standard specifications in the macroeconomic literature based on, respectively, three and eight variables and compare results with those obtained by larger models containing twenty or over one hundred conjunctural indicators. We first study forecasting accuracy and then perform a structural exercise focused on the effect of a monetary policy shock on the macroeconomy. Results show that BVARs estimated on the basis of hundred variables perform well in forecasting and are suitable for structural analysis.

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Bibliographic Reference

Banbura, M, Giannone, D and Reichlin, L. 2007. 'Bayesian VARs with Large Panels'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6326