Estimating Multicountry VAR Models

31 Pages Posted: 9 Jul 2009

See all articles by Fabio Canova

Fabio Canova

BI Norwegian Business School

Matteo Ciccarelli

European Central Bank (ECB)

Abstract

This article presents a method to estimate the coefficients, to test specification hypotheses, and to conduct policy exercises in multicountry Vector Autoregressive (VAR) models with cross-unit interdependencies, unit-specific dynamics, and time variations in the coefficients. The framework of analysis is Bayesian: A prior flexibly reduces the dimensionality of the model and puts structure on the time variations, Markov chain Monte Carlo (MCMC) methods are used to obtain posterior distributions, and marginal likelihoods to check the fit of various specifications. Impulse responses and conditional forecasts are obtained with the output of an MCMC routine. The transmission of certain shocks across countries is analyzed.

Suggested Citation

Canova, Fabio and Ciccarelli, Matteo, Estimating Multicountry VAR Models. International Economic Review, Vol. 50, Issue 3, pp. 929-959, August 2009, Available at SSRN: https://ssrn.com/abstract=1432248 or http://dx.doi.org/10.1111/j.1468-2354.2009.00554.x

Fabio Canova (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Matteo Ciccarelli

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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