Working Paper

Estimating (Markov-Switching) VAR Models without Gibbs Sampling: A Sequential Monte Carlo Approach

Abstract: Vector autoregressions with Markov-switching parameters (MS-VARs) fit the data better than do their constant-parameter predecessors. However, Bayesian inference for MS-VARs with existing algorithms remains challenging. For our first contribution, we show that Sequential Monte Carlo (SMC) estimators accurately estimate Bayesian MS-VAR posteriors. Relative to multi-step, model-specific MCMC routines, SMC has the advantages of generality, parallelizability, and freedom from reliance on particular analytical relationships between prior and likelihood. For our second contribution, we use SMC's flexibility to demonstrate that the choice of prior drives the key empirical finding of Sims, Waggoner, and Zha (2008) as much as does the data.

JEL Classification: C11; C18; C32; C52; E3; E4; E5;

https://doi.org/10.17016/FEDS.2015.116

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2015-12-18

Number: 2015-116

Pages: 56 pages