Model uncertainty in panel vector autoregressive models

Koop, G. and Korobilis, D. (2016) Model uncertainty in panel vector autoregressive models. European Economic Review, 81, pp. 115-131. (doi: 10.1016/j.euroecorev.2015.09.006)

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Abstract

We develop methods for Bayesian model averaging (BMA) or selection (BMS) in Panel Vector Autoregressions (PVARs). Our approach allows us to select between or average over all possible combinations of restricted PVARs where the restrictions involve interdependencies between and heterogeneities across cross-sectional units. The resulting BMA framework can find a parsimonious PVAR specification, thus dealing with overparameterization concerns. We use these methods in an application involving the euro area sovereign debt crisis and show that our methods perform better than alternatives. Our findings contradict a simple view of the sovereign debt crisis which divides the euro zone into groups of core and peripheral countries and worries about financial contagion within the latter group.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Korompilis Magkas, Professor Dimitris
Authors: Koop, G., and Korobilis, D.
Subjects:H Social Sciences > HA Statistics
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Economic Review
Publisher:Elsevier
ISSN:0014-2921
ISSN (Online):1873-572X
Published Online:09 October 2015
Copyright Holders:Copyright © 2015 Elsevier
First Published:First published in European Economic Review 81:115-131
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher.

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