Discussion paper

DP6326 Bayesian VARs with Large Panels

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.

£6.00
Citation

Reichlin, L, D Giannone and M Banbura (2007), ‘DP6326 Bayesian VARs with Large Panels‘, CEPR Discussion Paper No. 6326. CEPR Press, Paris & London. https://cepr.org/publications/dp6326