DP4033 Panel Index VAR Models: Specification, Estimation, Testing and Leading Indicators

Author(s): Fabio Canova, Matteo Ciccarelli
Publication Date: August 2003
Keyword(s): bayesian methods, leading indicators, markov chain monte carlo methods, panel var
JEL(s): C30, E50
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4033

This Paper proposes a method to conduct inference in panel VAR models with cross-unit interdependencies and time variations in the coefficients. The set-up used is Bayesian, and Markov chain Monte Carlo (MCMC) methods are used to estimate the posterior distribution of the features of interest. The model is re-parameterized to resemble an observable index model and specification searches are discussed. The approach can be used to construct multi-unit forecasts, leading indicators and to conduct policy analysis in multi-unit set-ups. The methodology is employed to construct leading indicators for inflation and GDP growth in the euro area.