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Steady-state priors for vector autoregressions
Stockholm University, Faculty of Social Sciences, Department of Statistics.
2009 (English)In: Journal of applied econometrics (Chichester, England), ISSN 0883-7252, E-ISSN 1099-1255, Vol. 24, no 4, 630-650 p.Article in journal (Refereed) Published
Abstract [en]

Bayesian priors are often used to restrain the otherwise highly over-parameterized vector autoregressive (VAR) models. The currently available Bayesian VAR methodology does not allow the User to specify prior beliefs about the unconditional mean, or steady state, of the system. This is unfortunate as the Steady State is something that economists usually Claim to know relatively well. This paper develops easily implemented methods for analyzing both stationary and cointegrated VARs, in reduced or structural form, with an informative prior oil the steady state. We document that prior information on the steady state leads to substantial gains in forecasting accuracy Oil Swedish macro data. A second example illustrates, the use of informative steady-state priors in a cointegration model of the consumption-wealth relationship in the USA. 

Place, publisher, year, edition, pages
2009. Vol. 24, no 4, 630-650 p.
Keyword [en]
error-correction model, bayesian-analysis, gibbs sampler, cointegration, likelihood, consumption, wealth
National Category
Probability Theory and Statistics
URN: urn:nbn:se:su:diva-60046DOI: 10.1002/jae.1065ISI: 000266118600005OAI: diva2:433777
authorCount :1Available from: 2011-08-11 Created: 2011-08-08 Last updated: 2011-08-11Bibliographically approved

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Villani, Mattias
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