Addressing COVID-19 outliers in BVARs with stochastic volatility

Andrea Carriero, Todd Clark, Massimiliano Marcellino and Elmar Mertens

No 13/2022, Discussion Papers from Deutsche Bundesbank

Abstract: The COVID-19 pandemic has led to enormous data movements that strongly affect parameters and forecasts from standard VARs. To address these issues, we propose VAR models with outlier-augmented stochastic volatility (SV) that combine transitory and persistent changes in volatility. The resulting density forecasts are much less sensitive to outliers in the data than standard VARs. Predictive Bayes factors indicate that our outlier-augmented SV model provides the best data fit for the pandemic period, as well as for earlier subsamples of relatively high volatility. In historical forecasting, outlier-augmented SV schemes fare at least as well as a conventional SV model.

Keywords: Bayesian VARs; stochastic volatility; outliers; pandemics; forecasts (search for similar items in EconPapers)
JEL-codes: C53 E17 E37 F47 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-for, nep-mac and nep-rmg
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Addressing COVID-19 Outliers in BVARs with Stochastic Volatility (2024)
Working Paper: Addressing COVID-19 Outliers in BVARs with Stochastic Volatility (2021)
Working Paper: Addressing COVID-19 Outliers in BVARs with Stochastic Volatility (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:132022

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