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
Author-Name: Dimitris Korobilis
Author-Name-First: Dimitris
Author-Name-Last: Korobilis
Author-Email: Dimitris.Korobilis@gla.ac.uk
Author-Workplace-Name: Department of Economics, University of Glasgow
Title: Model uncertainty in panel vector autoregressive models
Abstract: We develop methods for Bayesian model averaging (BMA) or selection (BMS) in Panel Vector Autoregressions (PVARs). Our approach allows us to select between or average over all possible combinations of restricted PVARs where the restrictions involve interdependencies between and heterogeneities across cross-sectional units.  The resulting BMA framework can find a parsimonious PVAR specification, thus dealing with overparameterization concerns. We use these methods in an application involving the euro area sovereign debt crisis and show that our methods perform better than alternatives. Our findings contradict a simple view of the sovereign debt crisis which divides the euro zone into groups of core and peripheral countries and worries about financial contagion within the latter group.
Length: 26 pages
Creation-Date: 2014-08
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/14-08.pdf
File-Format: Application/pdf
Number: 1408
Classification-JEL: C11,C33,C52,G10
Keywords: Bayesian model averaging, stochastic search variable selection, financial contagion, sovereign debt crisis
Handle: RePEc:str:wpaper:1408