vector autoregression

International Business Cycle Spillovers

JEL code(s)	C32 Multiple or Simultaneous Equation Models: Time-Series Models E32 Business Fluctuations; Cycles F41 Open Economy Macroeconomics
Keywords	business cycles, cointegration, industrial production, spillovers, unit roots, variance decomposition, vector autoregression
Series Number:	EABCN/CEPR Discussion Paper 53/2010
Authors:	Kamil Yilmaz
Date published:	August 1, 2010
Abstract:	This paper studies business cycle interdependence among the industrialized countries since 1958. Using the spillover index methodology recently proposed by Diebold and Yilmaz (2009) and based on the generalized VAR framework, I develop an alternative measure of comovement of macroeconomic aggregates across countries. I have several important results. First, the spillover index fluctuates over time, increasing substantially following the post-1973 U.S. recessions. Secondly, the band within which the spillover index fluctuates follows an upward trend since the start of the globalization process in the early 1990s. Thirdly, the spillover index recorded the sharpest increase ever following the peak of the global financial crisis in September 2008, reaching a record level as of December 2008 (See http://data.economicresearchforum.org/erf/bcspill.aspx?lang=en for updates of the spillover plot). I also derive measures of directional spillovers and show that the U.S. (1980s and 2000s) and Japan (1970s and 2000s) are major transmitters of shocks to other countries. Finally, during the 2008-2009 global recession shocks mostly originated from the United States and spread to other industrialized countries.
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On the Fit and Forecasting Performance of New Keynesian Models

JEL code(s)	C11 Bayesian Analysis C32 Multiple or Simultaneous Equation Models: Time-Series Models C53 Forecasting and Other Model Applications
Keywords	Bayesian Analysis, DSGE models, model evaluation, vector autoregression
Series Number:	EABCN/CEPR Discussion Paper 16/2005
Authors:	Frank Schorfheide Frank Smets Marco Del Negro Rafael Wouters
Date published:	January 1, 2005
Abstract:	The Paper provides new tools for the evaluation of DSGE models, and applies it to a large-scale New Keynesian dynamic stochastic general equilibrium (DSGE) model with price and wage stickiness and capital accumulation. Specifically, we approximate the DSGE model by a vector autoregression (VAR), and then systematically relax the implied cross-equation restrictions. Let delta denote the extent to which the restrictions are being relaxed. We document how the in- and out-of-sample fit of the resulting specification (DSGE-VAR) changes as a function of delta. Furthermore, we learn about the precise nature of the misspecification by comparing the DSGE model’s impulse responses to structural shocks with those of the best-fitting DSGE-VAR. We find that the degree of misspecification in large-scale DSGE models is no longer so large to prevent their use in day-to-day policy analysis, yet it is not small enough that it cannot be ignored.
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