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Large Vector Autoregressions with Asymmetric Priors

Author

Listed:
  • Andrea Carriero

    (Queen Mary University of London)

  • Todd E. Clark

    (Federal Reserve Bank of Cleveland)

  • Massimiliano Marcellino

    (Bocconi University, IGIER and CEPR)

Abstract

We propose a new algorithm which allows easy estimation of Vector Autoregressions (VARs) featuring asymmetric priors and time varying volatilities, even when the cross sectional dimension of the system N is particularly large. The algorithm is based on a simple triangularisation which allows to simulate the conditional mean coefficients of the VAR by drawing them equation by equation. This strategy reduces the computational complexity by a factor of N2 with respect to the existing algorithms routinely used in the literature and by practitioners. Importantly, this new algorithm can be easily obtained by modifying just one of the steps of the existing algorithms. We illustrate the benefits of the algorithm with numerical and empirical applications.

Suggested Citation

  • Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2015. "Large Vector Autoregressions with Asymmetric Priors," Working Papers 759, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:759
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    References listed on IDEAS

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    Cited by:

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    3. Martin Feldkircher & Gabriele Tondl, 2020. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 225-247, August.
    4. Joshua Chan & Arnaud Doucet & Roberto León-González & Rodney W. Strachan, 2018. "Multivariate Stochastic Volatility with Co-Heteroscedasticity," Working Paper series 18-38, Rimini Centre for Economic Analysis.
    5. Feldkircher, Martin & Gruber, Thomas & Huber, Florian, 2020. "International effects of a compression of euro area yield curves," Journal of Banking & Finance, Elsevier, vol. 113(C).
    6. Gregor Kastner & Florian Huber, 2020. "Sparse Bayesian vector autoregressions in huge dimensions," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(7), pages 1142-1165, November.
    7. Huber, Florian & Zörner, Thomas O., 2019. "Threshold cointegration in international exchange rates:A Bayesian approach," International Journal of Forecasting, Elsevier, vol. 35(2), pages 458-473.
    8. Huber, Florian & Zörner, Thomas, 2017. "Threshold cointegration and adaptive shrinkage," Department of Economics Working Paper Series 250, WU Vienna University of Economics and Business.
    9. Christian Hotz‐Behofsits & Florian Huber & Thomas Otto Zörner, 2018. "Predicting crypto‐currencies using sparse non‐Gaussian state space models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 37(6), pages 627-640, September.
    10. MOLTENI, Francesco, PAPPA, Evi, 2017. "The Combination of Monetary and Fiscal Policy Shocks: A TVP-FAVAR Approach," Economics Working Papers MWP 2017/13, European University Institute.
    11. Emmanuel C. Mamatzakis & Steven Ongena & Mike G. Tsionas, 2023. "The response of household debt to COVID-19 using a neural networks VAR in OECD," Empirical Economics, Springer, vol. 65(1), pages 65-91, July.
    12. Assaf, A. George & Tsionas, Mike G., 2019. "Forecasting occupancy rate with Bayesian compression methods," Annals of Tourism Research, Elsevier, vol. 75(C), pages 439-449.

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    More about this item

    Keywords

    Bayesian VARs; Stochastic volatility; Large datasets; Forecasting; Impulse response functions;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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