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The varying coefficient Bayesian panel VAR model

Author

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  • Tomasz Wieladek

    (Bank of England)

Abstract

Interacted panel VAR (IPVAR) models allow coefficients to vary as a deterministic function of observable country characteristics. The varying coefficient Bayesian panel VAR generalises this to the stochastic case. As an application of this framework, I examine if the impact of commodity price shocks on consumption and the CPI varies with the degree of exchange rate, financial, product and labour market liberalisation on data from 1976 Q1–2006 Q4 for 18 OECD countries. The confidence bands are smaller in the deterministic case and as a result most of the characteristics affect the transmission mechanism in a statistically significant way. But only financial liberalisation is an important determinant of commodity price shocks in the stochastic case. This suggests that results from IPVAR models should be interpreted with caution.

Suggested Citation

  • Tomasz Wieladek, 2016. "The varying coefficient Bayesian panel VAR model," Bank of England working papers 578, Bank of England.
    • Handle: RePEc:boe:boeewp:0578
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    2. Ibhagui, Oyakhilome & Olarewaju, Favour, 2020. "Broad Dollar Shocks and Economic Activity in Trade-Heavy Countries: The Role of Government Size," MPRA Paper 100944, University Library of Munich, Germany.
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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