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A Bayesian Markov-switching SAR model for time-varying cross-price spillovers

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  • Christian Glocker
  • Matteo Iacopini
  • Tam'as Krisztin
  • Philipp Piribauer

Abstract

The spatial autoregressive (SAR) model is extended by introducing a Markov switching dynamics for the weight matrix and spatial autoregressive parameter. The framework enables the identification of regime-specific connectivity patterns and strengths and the study of the spatiotemporal propagation of shocks in a system with a time-varying spatial multiplier matrix. The proposed model is applied to disaggregated CPI data from 15 EU countries to examine cross-price dependencies. The analysis identifies distinct connectivity structures and spatial weights across the states, which capture shifts in consumer behaviour, with marked cross-country differences in the spillover from one price category to another.

Suggested Citation

  • Christian Glocker & Matteo Iacopini & Tam'as Krisztin & Philipp Piribauer, 2023. "A Bayesian Markov-switching SAR model for time-varying cross-price spillovers," Papers 2310.19557, arXiv.org.
    • Handle: RePEc:arx:papers:2310.19557
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    References listed on IDEAS

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