Asymmetric conjugate priors for large Bayesian VARs

  • Chan J
17Citations
Citations of this article
7Readers
Mendeley users who have this article in their library.

This article is free to access.

Abstract

Large Bayesian VARs are now widely used in empirical macroeconomics. One popular shrinkage prior in this setting is the natural conjugate prior as it facilitates posterior simulation and leads to a range of useful analytical results. This is, however, at the expense of modeling flexibility, as it rules out cross‐variable shrinkage, that is, shrinking coefficients on lags of other variables more aggressively than those on own lags. We develop a prior that has the best of both worlds: it can accommodate cross‐variable shrinkage, while maintaining many useful analytical results, such as a closed‐form expression of the marginal likelihood. This new prior also leads to fast posterior simulation—for a BVAR with 100 variables and 4 lags, obtaining 10,000 posterior draws takes less than half a minute on a standard desktop. We demonstrate the usefulness of the new prior via a structural analysis using a 15‐variable VAR with sign restrictions to identify 5 structural shocks.

Cite

CITATION STYLE

APA

Chan, J. C. C. (2022). Asymmetric conjugate priors for large Bayesian VARs. Quantitative Economics, 13(3), 1145–1169. https://doi.org/10.3982/qe1381

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free