Bayesian inference

Bayesian Doubly Adaptive Elastic-Net Lasso for VAR Shrinkage

JEL code(s)	C11 Bayesian Analysis C32 Multiple or Simultaneous Equation Models: Time-Series Models C53 Forecasting and Other Model Applications
Keywords	Adaptive, Bayesian inference, Lasso, VAR
Authors:	Deborah Gefang
Date published:	January 10, 2012
Abstract:	We develop a novel Bayesian doubly adaptive elastic-net Lasso (DAELasso) approach for VAR shrinkage. DAELasso achieves data selection and coefficients shrinkage in a data based manner. It constructively deals with the explanatory variables that tend to be highly collinear by encouraging grouping effect. In addition, it allows for different degree of shrinkages for different coefficients. Rewriting the multivariate Laplace distribution as a scale mixture, we establish closed-form posteriors that can be drawn from a Gibbs sampler. We compare the forecasting performance of DAELasso to that of other popular Bayesian methods using US macro economic data. The results suggest that DAELasso is a useful complement to the available Baysian VAR shrinkage methods.
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JEL code(s)	C11 Bayesian Analysis C53 Forecasting and Other Model Applications E17 General Aggregative Models: Forecasting and Simulation
Keywords	Bayesian inference, DSGE model, DSGE-VAR model, DSGEVECM model, open economy
Series Number:	EABCN/CEPR Discussion Paper 35/2007
Authors:	Jesper Lindé Malin Adolfson Mattias Villani Stefan Laséen
Date published:	January 1, 2007
Abstract:	This paper estimates and tests a new Keynesian small open economy model in the tradition of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003) using Bayesian estimation techniques on Swedish data. To account for the switch to an inflation targeting regime in 1993 we allow for a discrete break in the central bank's instrument rule. A key equation in the model - the uncovered interest rate parity (UIP) condition - is well known to be rejected empirically. Therefore we explore the consequences of modifying the UIP condition to allow for a negative correlation between the risk premium and the expected change in the nominal exchange rate. The results show that the modification increases the persistence and volatility in the real exchange rate and that this model has an empirical advantage compared with the standard UIP specification.
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