dc.contributor.author | CARRIERO, Andrea | |
dc.contributor.author | CLARK, Todd E. | |
dc.contributor.author | MARCELLINO, Massimiliano | |
dc.date.accessioned | 2012-03-13T14:46:33Z | |
dc.date.available | 2012-03-13T14:46:33Z | |
dc.date.issued | 2012 | |
dc.identifier.issn | 1725-6704 | |
dc.identifier.uri | https://hdl.handle.net/1814/21136 | |
dc.description.abstract | The 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.mimetype | application/pdf | |
dc.language.iso | en | en |
dc.relation.ispartofseries | EUI ECO | en |
dc.relation.ispartofseries | 2012/08 | en |
dc.rights | info:eu-repo/semantics/openAccess | |
dc.subject | Bayesian VARs | en |
dc.subject | stochastic volatility | en |
dc.subject | forecasting | en |
dc.subject | prior specification | en |
dc.subject | C11 | en |
dc.subject | C13 | en |
dc.subject | C33 | en |
dc.subject | C53 | en |
dc.title | Common Drifting Volatility in Large Bayesian VARs | en |
dc.type | Working Paper | en |
dc.neeo.contributor | CARRIERO|Andrea|aut| | |
dc.neeo.contributor | CLARK|Todd E.|aut| | |
dc.neeo.contributor | MARCELLINO|Massimiliano|aut|EUI70008 | |
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