Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153697
Authors: 
Jarociński, Marek
Marcet, Albert
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1263
Abstract: 
We propose a benchmark prior for the estimation of vector autoregressions: a prior about initial growth rates of the modeled series. We first show that the Bayesian vs frequentist small sample bias controversy is driven by different default initial conditions. These initial conditions are usually arbitrary and our prior serves to replace them in an intuitive way. To implement this prior we develop a technique for translating priors about observables into priors about parameters. We find that our prior makes a big difference for the estimated persistence of output responses to monetary policy shocks in the United States.
Subjects: 
Bayesian estimation
Bias Correction
Initial Condition
monetary policy shocks
Prior about Growth Rate
Small Sample Distribution
Vector autoregression
JEL: 
C11
C22
C32
Document Type: 
Working Paper

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