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Large Bayesian VARs for Binary and Censored Variables

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  • Joshua C. C. Chan
  • Michael Pfarrhofer

Abstract

We extend the standard VAR to jointly model the dynamics of binary, censored and continuous variables, and develop an efficient estimation approach that scales well to high-dimensional settings. In an out-of-sample forecasting exercise, we show that the proposed VARs forecast recessions and short-term interest rates well. We demonstrate the utility of the proposed framework using a wide rage of empirical applications, including conditional forecasting and a structural analysis that examines the dynamic effects of a financial shock on recession probabilities.

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  • Joshua C. C. Chan & Michael Pfarrhofer, 2025. "Large Bayesian VARs for Binary and Censored Variables," Papers 2506.01422, arXiv.org.
    • Handle: RePEc:arx:papers:2506.01422
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    References listed on IDEAS

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    1. Benjamin K. Johannsen & Elmar Mertens, 2021. "A Time‐Series Model of Interest Rates with the Effective Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 1005-1046, August.
    2. Chan, Joshua C.C. & Poon, Aubrey & Zhu, Dan, 2023. "High-dimensional conditionally Gaussian state space models with missing data," Journal of Econometrics, Elsevier, vol. 236(1).
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    5. Bańbura, Marta & Giannone, Domenico & Lenza, Michele, 2015. "Conditional forecasts and scenario analysis with vector autoregressions for large cross-sections," International Journal of Forecasting, Elsevier, vol. 31(3), pages 739-756.
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    7. Michael Pfarrhofer & Anna Stelzer, 2025. "Scenario Analysis with Multivariate Bayesian Machine Learning Models," Papers 2502.08440, arXiv.org, revised Mar 2025.
    8. Z. I. Botev, 2017. "The normal law under linear restrictions: simulation and estimation via minimax tilting," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 79(1), pages 125-148, January.
    9. Niccolò Anceschi & Augusto Fasano & Daniele Durante & Giacomo Zanella, 2023. "Bayesian Conjugacy in Probit, Tobit, Multinomial Probit and Extensions: A Review and New Results," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 118(542), pages 1451-1469, April.
    10. Chan, Joshua C.C. & Pettenuzzo, Davide & Poon, Aubrey & Zhu, Dan, 2025. "Conditional forecasts in large Bayesian VARs with multiple equality and inequality constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 173(C).
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