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Large Bayesian vector auto regressions

Listed author(s):
  • Marta Banbura

    (European Central Bank, Frankfurt, Germany)

  • Domenico Giannone
  • Lucrezia Reichlin

This paper shows that vector auto regression (VAR) with Bayesian shrinkage is an appropriate tool for large dynamic models. We build on the results of De Mol and co-workers (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. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1137
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File URL: http://qed.econ.queensu.ca:80/jae/2010-v25.1/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 25 (2010)
Issue (Month): 1 ()
Pages: 71-92

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Handle: RePEc:jae:japmet:v:25:y:2010:i:1:p:71-92
DOI: 10.1002/jae.1137
Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/0883-7252/

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  6. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2002. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," CEPR Discussion Papers 3432, C.E.P.R. Discussion Papers.
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  19. Domenico Giannone & Lucrezia Reichlin & David H Small, 2007. "Nowcasting GDP and Inflation: The Real-Time Informational Content of Macroeconomic Data Releases," Money Macro and Finance (MMF) Research Group Conference 2006 164, Money Macro and Finance Research Group.
  20. 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 "Marco Biagi".
  21. Carlo Ambrogio Favero & Massimilano Marcellino & Francesca Neglia, "undated". "Principal components at work: The empirical analysis of monetary policy with large datasets," Working Papers 223, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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