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Panel Index VAR Models: Specification, Estimation, Testing and Leading Indicators

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  • Canova, Fabio
  • Ciccarelli, Matteo

Abstract

This Paper proposes a method to conduct inference in panel VAR models with cross-unit interdependencies and time variations in the coefficients. The set-up used is Bayesian, and Markov chain Monte Carlo (MCMC) methods are used to estimate the posterior distribution of the features of interest. The model is re-parameterized to resemble an observable index model and specification searches are discussed. The approach can be used to construct multi-unit forecasts, leading indicators and to conduct policy analysis in multi-unit set-ups. The methodology is employed to construct leading indicators for inflation and GDP growth in the euro area.

Suggested Citation

  • Canova, Fabio & Ciccarelli, Matteo, 2003. "Panel Index VAR Models: Specification, Estimation, Testing and Leading Indicators," CEPR Discussion Papers 4033, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4033
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    1. Canova, Fabio & Ciccarelli, Matteo, 2004. "Forecasting and turning point predictions in a Bayesian panel VAR model," Journal of Econometrics, Elsevier, vol. 120(2), pages 327-359, June.
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    1. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2007. "Similarities and convergence in G-7 cycles," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 850-878, April.
    2. Fabio Canova & Luca Gambetti, 2004. "On the Time Variations of US Monetary Policy: Who is right?," Money Macro and Finance (MMF) Research Group Conference 2004 96, Money Macro and Finance Research Group.
    3. João Leitão, 2004. "Demand Pull And Supply Push In Portuguese Cable Television," Econometrics 0409011, University Library of Munich, Germany.
    4. Fabio Canova & Carlo Favero, 2005. "Monetary policy in the Euro area: Lessons from 5 years of ECB and implications for Turkey," Economics Working Papers 922, Department of Economics and Business, Universitat Pompeu Fabra.

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    More about this item

    Keywords

    bayesian methods; leading indicators; markov chain monte carlo methods; panel var;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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