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Structural Compressed Panel VAR with Stochastic Volatility: A Robust Bayesian Model Averaging Procedure

Author

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  • Antonio Pacifico

    (Department of Economics and Law, University of Macerata, Piazza Strambi 1, 62100 Macerata, Italy)

Abstract

This paper improves the existing literature on the shrinkage of high dimensional model and parameter spaces through Bayesian priors and Markov Chains algorithms. A hierarchical semiparametric Bayes approach is developed to overtake limits and misspecificity involved in compressed regression models. Methodologically, a multicountry large structural Panel Vector Autoregression is compressed through a robust model averaging to select the best subset across all possible combinations of predictors, where robust stands for the use of mixtures of proper conjugate priors. Concerning dynamic analysis, volatility changes and conditional density forecasts are addressed ensuring accurate predictive performance and capability. An empirical and simulated experiment are developed to highlight and discuss the functioning of the estimating procedure and forecasting accuracy.

Suggested Citation

  • Antonio Pacifico, 2022. "Structural Compressed Panel VAR with Stochastic Volatility: A Robust Bayesian Model Averaging Procedure," Econometrics, MDPI, vol. 10(3), pages 1-24, July.
    • Handle: RePEc:gam:jecnmx:v:10:y:2022:i:3:p:28-:d:860755
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    References listed on IDEAS

    as
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    9. Carriero, A. & Kapetanios, G. & Marcellino, M., 2009. "Forecasting exchange rates with a large Bayesian VAR," International Journal of Forecasting, Elsevier, vol. 25(2), pages 400-417.
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