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    Rights statement: This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 141, 2022 DOI: 10.1016/j.euroecorev.2021.103952

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Estimation of large dimensional time varying VARs using copulas

Research output: Contribution to journalJournal articlepeer-review

Published
Article number103952
<mark>Journal publication date</mark>31/01/2022
<mark>Journal</mark>European Economic Review
Volume141
Number of pages34
Publication StatusPublished
Early online date6/11/21
<mark>Original language</mark>English

Abstract

This paper provides a simple, yet reliable, alternative to the (Bayesian) estimation of large multivariate VARs with time variation in the conditional mean equations and/or in the covariance structure. The original multivariate, n-dimensional model is treated as a set of n univariate estimation problems, and cross-dependence is handled through the use of a copula. This makes it possible to run the estimation of each univariate equation in parallel. Thus, only univariate distribution functions are needed when estimating the individual equations, which are often available in closed form, and easy to handle with MCMC (or other techniques). Thereafter, the individual posteriors are combined with the copula, so obtaining a joint posterior which can be easily resampled. We illustrate our approach using various examples of large time-varying parameter VARs with 129 and even 215 macroeconomic variables.

Bibliographic note

This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 141, 2022 DOI: 10.1016/j.euroecorev.2021.103952