Panel Index VAR Models: Specification, Estimation, Testing and Leading Indicators

28 Pages Posted: 15 Oct 2003

See all articles by Fabio Canova

Fabio Canova

BI Norwegian Business School

Matteo Ciccarelli

European Central Bank (ECB)

Date Written: August 2003

Abstract

This Paper proposes a method to conduct inference in panel VAR models with cross-unit interdependencies and time variations in the coefficients. The set-up used is Bayesian, and Markov Chain Monte Carlo (MCMC) methods are used to estimate the posterior distribution of the features of interest. The model is re-parameterized to resemble an observable index model and specification searches are discussed. The approach can be used to construct multi-unit forecasts, leading indicators and to conduct policy analysis in multi-unit set-ups. The methodology is employed to construct leading indicators for inflation and GDP growth in the euro area.

Keywords: Panel VAR, Bayesian methods, leading indicators, Markov Chain Monte Carlo methods

JEL Classification: C30, E50

Suggested Citation

Canova, Fabio and Ciccarelli, Matteo, Panel Index VAR Models: Specification, Estimation, Testing and Leading Indicators (August 2003). Available at SSRN: https://ssrn.com/abstract=458961

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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