Model Uncertainty and Bayesian Model Averaging in Vector Autoregressive Processes

Rodney Strachan and Herman van Dijk

No 06/5, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Economic forecasts and policy decisions are often informed by empirical analysis based on econometric models. However, inference based upon a single model, when several viable models exist, limits its usefulness. Taking account of model uncertainty, a Bayesian model averaging procedure is presented which allows for unconditional inference within the class of vector autoregressive (VAR) processes. Several features of VAR process are investigated. Measures on manifolds are employed in order to elicit uniform priors on subspaces defined by particular structural features of VARs. The features considered are the number and form of the equilibrium economic relations and deterministic processes. Posterior probabilities of these features are used in a model averaging approach for forecasting and impulse response analysis. The methods are applied to investigate stability of the "Great Ratios" in U.S. consumption, investment and income, and the presence and effects of permanent shocks in these series. The results obtained indicate the feasibility of the proposed method.

Keywords: Posterior probability; Grassman manifold; Orthogonal group; Cointegration; Model averaging; Stochastic trend; Impulse response; Vector autoregressive model. (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp06-5.pdf (application/pdf)

Related works:
Working Paper: Model uncertainty and Bayesian model averaging in vector autoregressive processes (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lec:leecon:06/5

Ordering information: This working paper can be ordered from
https://www2.le.ac.u ... -1/discussion-papers

Access Statistics for this paper

More papers in Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester School of Business, University of Leicester, University Road. Leicester. LE1 7RH. UK Provider-Homepage: https://le.ac.uk/school-of-business. Contact information at EDIRC.
Bibliographic data for series maintained by Abbie Sleath ().