Template-Type: ReDIF-Paper 1.0
Author-Name: Gary Koop
Author-Name-First: Gary
Author-Name-Last: Koop
Author-Email: gary.koop@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Title: Using VARs and TVP-VARs with Many Macroeconomic Variables
Abstract: This paper discusses the challenges faced by the empirical macroeconomist and methods for surmounting them. These challenges arise due to the fact that macroeconometric models potentially include a large number of variables and allow for time variation in parameters. These considerations lead to models which have a large number of parameters to estimate relative to the number of observations. A wide range of approaches are surveyed which aim to overcome the resulting problems. We stress the related themes of prior shrinkage, model averaging and model selection. Subsequently, we consider a particular modelling approach in detail. This involves the use of dynamic model selection methods with large TVP-VARs. A forecasting exercise involving a large US macroeconomic data set illustrates the practicality and empirical success of our approach.
Length: 35 pages
Creation-Date: 2013-01
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2013/13-03FINAL.pdf
File-Format: Application/pdf
Number: 1303
Classification-JEL: C11, C52, E27, E37
Keywords: Bayesian VAR; forecasting; time-varying coefficients; state-space model
Handle: RePEc:str:wpaper:1303