Date: 2011
Type: Working Paper
Adapting the Litterman prior for cointegrated VARs
Working Paper, EUI ECO, 2011/14
MARKUN, Michal, Adapting the Litterman prior for cointegrated VARs, EUI ECO, 2011/14 - https://hdl.handle.net/1814/17214
Retrieved from Cadmus, EUI Research Repository
The paper presents a novel prior for Bayesian VAR models, characterized by explicit modelling of cointegration that avoids certain unattractive restrictive properties of the priors used previously. The potential of the prior for easy elicitation from the well-established Litterman beliefs is demonstrated. An efficient procedure for sampling from posterior distribution is provided. The favourable outcome of the forecast comparison exercise gives further support for the use of the methods proposed.
Cadmus permanent link: https://hdl.handle.net/1814/17214
ISSN: 1725-6704
Series/Number: EUI ECO; 2011/14
Publisher: European University Institute