Paper #920

Title:

Estimating multi-country VAR models

Authors:

Fabio Canova and Matteo Ciccarelli

Date:

June 2002 (Revised: April 2008)

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 countries is analyzed.

Keywords:

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

JEL codes:

C3, C5, E5

Area of Research:

Macroeconomics and International Economics

Published in:

International Economic Review, 50(3), 2009, 929-961

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