A Bayesian Markov-switching SAR model for time-varying cross-price spillovers

Christian Glocker, Matteo Iacopini, Tam\'as Krisztin and Philipp Piribauer

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Abstract: The spatial autoregressive (SAR) model is extended by introducing a Markov switching dynamics for the weight matrix and spatial autoregressive parameter. The framework enables the identification of regime-specific connectivity patterns and strengths and the study of the spatiotemporal propagation of shocks in a system with a time-varying spatial multiplier matrix. The proposed model is applied to disaggregated CPI data from 15 EU countries to examine cross-price dependencies. The analysis identifies distinct connectivity structures and spatial weights across the states, which capture shifts in consumer behaviour, with marked cross-country differences in the spillover from one price category to another.

Date: 2023-10
New Economics Papers: this item is included in nep-ure
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