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Sophisticated and small versus simple and sizeable: When does it pay off to introduce drifting coefficients in Bayesian VARs?

Martin Feldkircher, Luis Gruber, Florian Huber, Gregor Kastner

arXiv 1 Nov 2017 · Statistics — Methodology

arXiv:1711.00564 · PDF · DOI · OpenAlex · Extracted main text

Abstract

We assess the relationship between model size and complexity in the time-varying parameter VAR framework via thorough predictive exercises for the Euro Area, the United Kingdom and the United States. It turns out that sophisticated dynamics through drifting coefficients are important in small data sets, while simpler models tend to perform better in sizeable data sets. To combine the best of both worlds, novel shrinkage priors help to mitigate the curse of dimensionality, resulting in competitive forecasts for all scenarios considered. Furthermore, we discuss dynamic model selection to improve upon the best performing individual model for each point in time.

Citation extraction

52
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distinct cited
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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1barticle[author] Bhattacharya, AnirbanA., Pati, DebdeepD., Pillai, N… (2015) )1.00053100%
2barticle[author] D'Agostino, AntonelloA., Gambetti, LucaL. Giannone,… (2013) )0.92843100%
3barticle[author] Huber, FlorianF. Feldkircher, MartinM (2017) ) self0.73732100%
4barticle[author] Frühwirth-Schnatter, SylviaS. Wagner, HelgaH (2010) )0.73732100%
5barticle[author] Belmonte, Miguel AGM. A., Koop, GaryG. Korobilis, D… (2014) )0.64422100%
6barticle[author] Bitto, AngelaA. Frühwirth-Schnatter, SylviaS (2019) )0.64422100%
7barticle[author] Cogley, TimothyT. Sargent, Thomas JT. J (2005) )0.64422100%
8barticle[author] George, Edward IE. I. McCulloch, Robert ER. E (1993) )0.64422100%
9barticle[author] George, Edward IE. I., Sun, DongchuD. Ni, ShawnS (2008) )0.64422100%
10barticle[author] Griffin, Jim EJ. E. Brown, Philip JP. J (2010) )0.64422100%

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