DP6326 Bayesian VARs with Large Panels

Author(s):	Marta Banbura, Domenico Giannone, Lucrezia Reichlin
Publication Date:	June 2007
Keyword(s):	Bayesian VAR, forecasting, large cross-sections, monetary VAR
JEL(s):	C11, C13, C33, C53
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=6326

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.