The Varying Coefficient Bayesian Panel VAR Model

31 Pages Posted: 11 Jan 2016

Date Written: January 8, 2016

Abstract

Interacted panel VAR (IPVAR) models allow coefficients to vary as a deterministic function of observable country characteristics. The varying coefficient Bayesian panel VAR generalises this to the stochastic case. As an application of this framework, I examine if the impact of commodity price shocks on consumption and the CPI varies with the degree of exchange rate, financial, product and labour market liberalisation on data from 1976 Q1–2006 Q4 for 18 OECD countries. The confidence bands are smaller in the deterministic case and as a result most of the characteristics affect the transmission mechanism in a statistically significant way. But only financial liberalisation is an important determinant of commodity price shocks in the stochastic case. This suggests that results from IPVAR models should be interpreted with caution.

Keywords: Bayesian panel VAR, commodity price shocks

JEL Classification: C33, E30, F4

Suggested Citation

Wieladek, Tomasz, The Varying Coefficient Bayesian Panel VAR Model (January 8, 2016). Bank of England Working Paper No. 578, Available at SSRN: https://ssrn.com/abstract=2713856 or http://dx.doi.org/10.2139/ssrn.2713856

Tomasz Wieladek (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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