A new algorithm for structural restrictions in Bayesian vector autoregressions

Korobilis, D. (2022) A new algorithm for structural restrictions in Bayesian vector autoregressions. European Economic Review, 148, 104241. (doi: 10.1016/j.euroecorev.2022.104241)

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A comprehensive methodology for inference in vector autoregressions (VARs) using sign and other structural restrictions is developed. The reduced-form VAR disturbances are driven by a few common factors and structural identification restrictions can be incorporated in their loadings in the form of parametric restrictions. A Gibbs sampler is derived that allows for reduced-form parameters and structural restrictions to be sampled efficiently in one step. A key benefit of the proposed approach is that it allows for treating parameter estimation and structural inference as a joint problem. An additional benefit is that the methodology can scale to large VARs with multiple shocks, and it can be extended to accommodate non-linearities, asymmetries, and numerous other interesting empirical features. The excellent properties of the new algorithm for inference are explored using synthetic data experiments, and by revisiting the role of financial factors in economic fluctuations using identification based on sign restrictions.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Korompilis Magkas, Professor Dimitris
Authors: Korobilis, D.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Economic Review
ISSN (Online):1873-572X
Published Online:17 July 2022
Copyright Holders:Copyright © 2022 The Authors
First Published:First published in European Economic Review 148:104241
Publisher Policy:Reproduced under a Creative Commons License
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