BVARs: A Survey of the Recent Literature with an Application to the European Monetary System
This paper reviews recent advances in the specification and estimation of Bayesian Vector Autoregressive models (BVARs). After describing the general principle of Bayesian estimation applied to a VAR, we first present the methodology originally developed by Litterman (1986) and Doan et Al. (1984) and review alternative prior distributions. We then present several extensions of the basic model and discuss some issues in forecasting and structural analysis. An application to the estimation of a system of time-varying reaction functions for four European central banks under the European Monetary System (EMS) illustrates how results previously presented may be applied in practice.
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Volume (Year): 93 (2003)
Issue (Month): 5 (September-October)
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