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VAR Models with Fat Tails and Dynamic Asymmetry

In: Recent Developments in Bayesian Econometrics and Their Applications

Author

Listed:
  • Tamás Kiss

    (Örebro University, School of Business)

  • Stepan Mazur

    (Örebro University, School of Business)

  • Hoang Nguyen

    (Linköping University, Department of Management and Engineering)

  • Pär Österholm

    (Örebro University, School of Business
    National Institute of Economic Research)

Abstract

In this chapter, we extend the standard Gaussian stochastic volatility Bayesian VAR by employing the generalized hyperbolic skew Student’s t distribution for the innovations. Allowing the skewness parameter to vary over time, our specification permits flexible modelling of innovations in terms of both fat tails and—potentially dynamic—asymmetry. In an empirical application using US data on industrial production, consumer prices and economic policy uncertainty, we find support—although to a moderate extent—for time-varying skewness. In addition, we find that shocks to economic policy uncertainty have a negative effect on both industrial production growth and CPI inflation.

Suggested Citation

  • Tamás Kiss & Stepan Mazur & Hoang Nguyen & Pär Österholm, 2025. "VAR Models with Fat Tails and Dynamic Asymmetry," Springer Books, in: Stepan Mazur & Pär Österholm (ed.), Recent Developments in Bayesian Econometrics and Their Applications, pages 67-88, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-00110-8_5
    DOI: 10.1007/978-3-032-00110-8_5
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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