Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153400
Authors: 
Bańbura, Marta
Giannone, Domenico
Reichlin, Lucrezia
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 966
Abstract: 
This paper shows that Vector Autoregression with Bayesian shrinkage is an appropriate tool for large dynamic models. We build on the results by De Mol, Giannone, and Reichlin (2008) and show that, when the degree of shrinkage is set in relation to the cross-sectional dimension, the forecasting performance of small monetary VARs can be improved by adding additional macroeconomic variables and sectoral information. In addition, we show that large VARs with shrinkage produce credible impulse responses and are suitable for structural analysis.
Subjects: 
Bayesian VAR
forecasting
large cross-sections
Monetary VAR
JEL: 
C11
C13
C33
C53
Document Type: 
Working Paper

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