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Bayesian VARs with large panels

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  • Domenico Giannone
  • Martha Banbura
  • Lucrezia Reichlin

Abstract

This paper shows that Vector Autoregression with Bayesian shrinkage is an appropriate tool for large dynamic models. We build on the results by De Mol, Giannone, and Reichlin (2008) and show that, when the degree of shrinkage is set in relation to the cross-sectional dimension, the forecasting performance of small monetary VARs can be improved by adding additional macroeconomic variables and sectoral information. In addition, we show that large VARs with shrinkage produce credible impulse responses and are suitable for structural analysis.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/13388.

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Date of creation: 2008
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Publication status: Forthcoming
Handle: RePEc:ulb:ulbeco:2013/13388

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References

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  2. Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2007. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Center for Economic Research (RECent) 008, University of Modena and Reggio E., Dept. of Economics.
  3. D''Agostino, Antonello & Giannone, Domenico, 2007. "Comparing Alternative Predictors Based on Large-Panel Factor Models," CEPR Discussion Papers 6564, C.E.P.R. Discussion Papers.
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