Estimating Multi-Country VAR Models

37 Pages Posted: 24 Apr 2006

See all articles by Fabio Canova

Fabio Canova

BI Norwegian Business School

Matteo Ciccarelli

European Central Bank (ECB)

Date Written: April 2006

Abstract

This paper describes a methodology to estimate the coefficients, to test specification hypotheses and to conduct policy exercises in multi-country 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; 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 MCMC routine. The transmission of certain shocks across G7 countries is analyzed.

Keywords: Multi country VAR, Markov Chain Monte Carlo methods, Flexible priors, International transmission

JEL Classification: C3, C5, E5

Suggested Citation

Canova, Fabio and Ciccarelli, Matteo, Estimating Multi-Country VAR Models (April 2006). ECB Working Paper No. 603, Available at SSRN: https://ssrn.com/abstract=890987

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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