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dc.contributor.authorCARRIERO, Andrea
dc.contributor.authorCLARK, Todd E.
dc.contributor.authorMARCELLINO, Massimiliano
dc.date.accessioned2012-03-13T14:46:33Z
dc.date.available2012-03-13T14:46:33Z
dc.date.issued2012
dc.identifier.issn1725-6704
dc.identifier.urihttp://hdl.handle.net/1814/21136
dc.description.abstractThe estimation of large Vector Autoregressions with stochastic volatility using standard methods is computationally very demanding. In this paper we propose to model conditional volatilities as driven by a single common unobserved factor. This is justified by the observation that the pattern of estimated volatilities in empirical analyses is often very similar across variables. Using a combination of a standard natural conjugate prior for the VAR coefficients, and an independent prior on a common stochastic volatility factor, we derive the posterior densities for the parameters of the resulting BVAR with common stochastic volatility (BVAR-CSV). Under the chosen prior the conditional posterior of the VAR coefficients features a Kroneker structure that allows for fast estimation, even in a large system. Using US and UK data, we show that, compared to a model with constant volatilities, our proposed common volatility model significantly improves model fit and forecast accuracy. The gains are comparable to or as great as the gains achieved with a conventional stochastic volatility specification that allows independent volatility processes for each variable. But our common volatility specification greatly speeds computations.en
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2012/08en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectBayesian VARsen
dc.subjectstochastic volatilityen
dc.subjectforecastingen
dc.subjectprior specificationen
dc.subjectC11en
dc.subjectC13en
dc.subjectC33en
dc.subjectC53en
dc.titleCommon Drifting Volatility in Large Bayesian VARsen
dc.typeWorking Paperen
dc.neeo.contributorCARRIERO|Andrea|aut|
dc.neeo.contributorCLARK|Todd E.|aut|
dc.neeo.contributorMARCELLINO|Massimiliano|aut|EUI70008
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