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Sign restrictions in high-dimensional vector autoregressions

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  • Dimitris Korobilis

Abstract

This paper proposes a new Bayesian sampling scheme for inference in vector autoregressions (VARs) using sign restrictions. I build on a factor model decomposition of the reduced-form VAR disturbances, which are assumed to be driven by a few common factors/shocks. The outcome is a computationally efficient algorithm that allows to jointly sample VAR parameters as well as decompositions of the covariance matrix satisfying desired sign restrictions. Using artificial and real data I show that the new algorithm works well and is multiple times more efficient than existing accept/reject algorithms for sign restrictions.

Suggested Citation

  • Dimitris Korobilis, 2020. "Sign restrictions in high-dimensional vector autoregressions," Working Papers 2020_21, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2020_21
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    Cited by:

    1. Dimitris Korobilis & Kenichi Shimizu, 2022. "Bayesian Approaches to Shrinkage and Sparse Estimation," Foundations and Trends(R) in Econometrics, now publishers, vol. 11(4), pages 230-354, June.
    2. Raffaella Giacomini & Toru Kitagawa & Alessio Volpicella, 2017. "Uncertain identification," CeMMAP working papers CWP18/17, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    3. Martínez-Hernández, Catalina, 2020. "Disentangling the effects of multidimensional monetary policy on inflation and inflation expectations in the euro area," Discussion Papers 2020/18, Free University Berlin, School of Business & Economics.

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    More about this item

    Keywords

    high-dimensional VAR; structural inference; factor model; sign restriction; Gibbs sampling;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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