Bayesian VAR Model Research Articles

Regional Specific Idiosyncrasies and Fiscal Policy: Evidence from 47 Regions of the Central and Eastern European Countries

Purpose: The purpose of our article is to explore and study how shocks of fiscal policy are transmitted across Central and Eastern European (CEE) regions. Design/Methodology/Approach: We employ Bayesian panel VAR model to estimate and study the dynamic effects of fiscal policy on regional economic activity. Our sample of study includes 47 regions focusing on the CEE countries over the period 2001-2016. Findings: Having incorporated a possible structural break following the aftermath of the 2007 Crisis, the impulse response functions derived from the estimated models reveal cross-region variations in policy responses in terms of their magnitude and timing. Given the fact that the asymmetric effects of fiscal policy shocks across regions exist, we proceed in examining the sources of regional heterogeneities. We show that liquidity constraints, access to banking sector and participant rate in tertiary education have significant impact on regional fiscal multipliers. Practical Implications: The results have practical implication for macroeconomic policy - they show regional heterogeneities of fiscal policy effectiveness. Originality/value: The main value added of our paper is explaining heterogeneity of fiscal policy effects within the theoretical background of Ricardian and non-Ricardian households. Firstly, we are the first to show that regional fiscal multipliers depend on households’ access to banking sector. Secondly, the novelty of our paper is that we show that participant rate in tertiary education significantly decreases regional fiscal multipliers.

The effects of ageing population on health expenditure and economic growth in China: A Bayesian-VAR approach.

The increasing proportion of the population aged 65 or over has generated a global rise of health spending due to higher demand for medical and long-term care services, which has become a growing challenge to the sustainability of public finances across countries. This phenomenon is especially prominent in China, which has experienced accelerated rates of both economic growth and population ageing over the past four decades. Using Bayesian-VAR (B-VAR) models we compute the impulse response functions (IRFs) and the forecast error variance decomposition functions (FEVDs) to empirically examine the dynamic relationships between ageing index, life expectancy, economic growth and health expenditure in China. We compare China with the USA which has distinct trajectories of population structure and economic development to better understand the former's dynamic patterns. We find a pronounced response for both the USA and China of ageing index to life expectancy and of health spending per capita to GDP per capita, while ageing population induces a relatively strong reaction from health expenditure per capita in China. Our results are robust with either nominal or real variables. These findings suggest that, in China, a well-rounded policy accommodating economic, social and health factors is needed to improve the quality of life of the ageing population for a sustainable development of the economy.

A hybrid time-varying parameter Bayesian VAR analysis of Okun’s law in the United States

Employing quarterly data on GDP growth and the unemployment rate ranging from 1948Q3 to 2019Q4, we study the stability of Okun’s law in the United States. This is done by estimating hybrid time-varying parameter Bayesian VAR models that allow for time-variation in none, one or both of the equations. Model comparison based on marginal likelihoods suggests that the relationship has not been stable. However, the amount of change in the dynamic relationship between the two variables is quantitatively very modest.

Bayesian Time-Varying Parameter VAR 모형을 이용한 아시아 주식시장과 경제정책 불확실성에 관한 연구

Bayesian Time-Varying Parameter VAR 모형을 이용한 아시아 주식시장과 경제정책 불확실성에 관한 연구

The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR

AbstractThis paper employs a medium scale Bayesian VAR model to provide a rich picture of the transmission of unconventional monetary policy (UMP) shocks in various dimensions of the economy, and to shed light on the appropriate policy mix that the central bank could adopt to fulfil its price stability mandate. We show that UMP shocks have a significant positive impact on both economic activity and inflation; stem financial market stress episodes and boost economic sentiment. Additionally, several channels seem to have been activated, including the exchange rate, inflation expectations and the bank lending channel. Counterfactual policy analysis suggests that a policy mix that combines the use of permanently negative interest rates with a balance sheet expansion at a steady pace over a long period, could bring inflation closer to the target. Alternative policy scenarios that, either give more weight on the purchases during the first months or, terminate asset purchases too early, would fail to keep inflation on track to meet its target.

Thank you for your staying! An analysis of the economic impact of tourism in Japanese prefectures

ABSTRACT A growing body of literature investigates the bi-univocal relationship between tourism and economic growth. Even if sub-national studies are deemed relevant, these are rare: we provide a first analysis of such relationship for Japanese regions and prefectures, using Granger Causality tests in a Bayesian VAR model, from 2007 to 2014. Both the tourism-led growth and the economic-led tourism hypotheses are supported in 4 out of 8 regions and in 19 out of 47 prefectures (either univocally and/or bi-univocally): it is possible to use tourism as a policy instrument to stimulate economic growth, even if regional discrepancies are to be expected.

GOVERNMENT SPENDING MULTIPLIERS IN GOOD TIMES AND BAD TIMES: THE CASE OF EMERGING MARKETS

We investigate the presence of nonlinear effects of government spending shocks during good and bad times in a panel of 17 emerging markets through the lens of a Bayesian panel threshold VAR model. We find that the responses of gross domestic product, consumption, investment, trade balance, real exchange rate, and real interest rates vary depending on the state of the economy. Particularly, in slump periods, both consumption and investment may respond negatively to a government purchase stimulus, unlike in normal times. Our estimated government spending multipliers are less than one in the two regimes and can be zero in bad times.

Energy resource melioration and CO2 emissions in China and Nigeria: Efficiency and trade perspectives

Circular economy is one effective strategy to achieve a healthy environment and efficient use of resources. In this study, the trade relationship between China and Nigeria is used to establish how circular economy ameliorates climate change. On the basis of CO2 emissions, data from 1991 to 2014 are obtained and measures for energy efficiency in the mining and extractive-related sectors from energy intensity are derived using Fisher ideal index decomposition. This study utilizes panel-corrected standard error, feasible generalized least squares, autoregressive distribute lag bound, and Bayesian VAR models. These techniques suggest that energy efficiency in the mining and extractive-related sector and the circular economy have not translated into CO2 emission reduction in both countries. However, economic growth, energy use (non-renewable energy), and clean energy substitution (renewable energy) are essential factors in mitigating CO2 emissions. Given such evidence, resource melioration for energy consumption and economic growth have indispensable roles in reducing CO2 emissions.

Downside risk, financial conditions and systemic risk in China

Using quantile regression and Bayesian-VAR model, we demonstrate that deteriorating financial conditions and high systemic risk reinforce future downside risk when current GDP growth is relatively low in China. We construct the financial conditions indexes (FCIs) and find that there is a large difference between the forecasting ability of financial conditions and systemic risk to future GDP growth. The leading and early warning functions of systemic risks are better than that of financial conditions.

The Spillover Effects of External Real and Financial Shocks on the Korean Economy: A Bayesian VAR Approach

Purpose– This study aims to analyze the spillover effects of external real and financial shocks on the Korean economy during January 2000 and December 2019. Design/methodology/approach–Using the Bayesian VAR model, we analyze whether there were substantial changes in the effects of U.S. monetary policy and macroeconomic shocks after the global financial crisis. Findings–First, an increase in U.S. industrial production had long-term positive effects on Korea’s real and financial variables, except for Korea’s call rate. Second, the U.S. monetary policy shock measured by an increase in federal fund rate had significant negative effects on Korea’s current account balance and stock prices. Third, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shock had a negative effect on Korea’s stock prices and the value of Korean won against the U.S. dollar. To sum it up, the spillover effects of external shocks have increased after the global financial crisis, implying that decoupling of domestic and foreign economies may be halted or reversed. Research implications or Originality– As the impact of the global financial crisis subsided and the global economy recovered, the spillover effects of external shocks on the domestic economy became also more significant. It should be noted that policy effectiveness may vary depending on interaction of internal and external economic conditions under the increasing uncertainty of the global economy.

Macroeconomic spillover effects of the Chinese economy.

The slowdown of economy and widening of domestic imbalances in China bothers economists and politicians across the globe. We estimate the influence of a negative output shock in China on a number of different economies. We concentrate on China's neighboring countries. We compare the results from the Global VAR model and from the Bayesian VAR models. Also using Bayesian model averaging we search for determinants of Chinese spillovers for the global economy. We find that spillovers are stronger to economies with less flexible exchange rates, a higher share of manufacturing in gross value added and to economies which are larger.

Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries

We examine the insulating property of flexible exchange rates in CEE economies considering that they have adopted different regimes. We estimate a set of Bayesian structural VAR models with common serial correlations using data spanning 1998q1-2015q4. We derive the long-term identifying restrictions from a macroeconomic model. We find that irrespective of the exchange rate regime, real shocks primarily drive output. However, its reactions to these shocks are substantially stronger under less flexible regimes, whereas the responses to nominal shocks are similar. Hence, the insulating property of flexible regimes can reduce the costs from economic shocks.

Government spending and heterogeneous consumption dynamics

What is the effect of government spending on consumption? Neoclassical and new Keynesian models deliver opposing predictions and empirical studies differ in their conclusions. This paper takes a data-driven approach and exploits information from over 200 variables via a Bayesian factor-augmented VAR model. I use sign restrictions for identifying effects that both classes of models agree upon. This approach imposes a minimal set of restrictions on the empirical model, leaving the sign and magnitude of the effect of government spending on consumption free to be determined by the data. I find that: (i) government spending increases aggregate consumption; (ii) the estimated spending multiplier is close to 2; (iii) there exists heterogeneity even within durable, nondurable, and service consumption variables which is undocumented in the literature. Finally, I show that my identified structural shocks are not predictable by economic agents and are uncorrelated with traditional monetary policy shocks, suggesting that these effects are not confounded by monetary policy.

Do Non-Performing Loans Matter for Bank Lending and the Business Cycle in Euro Area Countries?

We contribute to the empirical literature on the impact of non-performing loan (NPL) ratios on aggregate banking sector variables and the macroeconomy by estimating a panel Bayesian VAR model for twelve euro area countries. The model is estimated assuming a hierarchical prior that allows for country-specific coefficients. The VAR includes a large set of variables and is identified via Choleski factorisation. We estimate the impact of exogenous shocks to the change in NPL ratios across countries. The main findings of the paper are as follows: i ) An impulse response analysis shows that an exogenous increase in the change in NPL ratios tends to depress bank lending volumes, widens bank lending spreads and leads to a fall in real GDP growth and residential real estate prices; ii ) A forecast error variance decomposition shows that shocks to the change in NPL ratios explain a relatively large share of the variance of the variables in the VAR, particularly for countries that experienced a large increase in NPL ratios during the recent crises; and iii ) A three-year structural out-of-sample scenario analysis provides quantitative evidence that reducing banks' NPL ratios can produce significant benefits in euro area countries in terms of improved macroeconomic and financial conditions. JEL Classification: G21, C32, C11

베이지안 패널 VAR모형을 이용한 거시경제변수가 지역 주택가격에 미치는 영향

베이지안 패널 VAR모형을 이용한 거시경제변수가 지역 주택가격에 미치는 영향

The relation between the corporate bond-yield spread and the real economy: Stable or time-varying?

In this paper we assess whether the relation between the corporate bond-yield spread and the real economy has been stable over time. Using quarterly US data from 1953Q1 to 2018Q2, we estimate Bayesian VAR models which allow for drifting parameters and/or stochastic volatility and conduct formal model selection in a Bayesian setting. Our results indicate that the relation between the variables has been stable; we do, however, find strong support for stochastic volatility. We conclude that the corporate bond-yield spread’s usefulness for predicting real economic activity has not changed to a relevant extent after the Great Recession.

Forecasting models for the Chinese macroeconomy: the simpler the better?

We consider the problem of macroeconomic forecasting for China. Our objective is to determine whether well-established forecasting models that are commonly used to compute forecasts for Western macroeconomies are also useful for China. Our study includes 19 different forecasting models, ranging from simple approaches such as the naive forecast to more sophisticated techniques such as ARMA, Bayesian VAR, and factor models. We use these models to forecast two different measures of price inflation and two different measures of real activity, with forecast horizons ranging from 1 to 12 months, over a period that stretches from March 2005 to December 2018. We test null hypotheses of equal mean squared forecasting error between each candidate model and a simple benchmark. We find evidence that AR, ARMA, VAR, and Bayesian VAR models provide superior 1-month-ahead forecasts of the producer price index when compared to simple benchmarks, but find no evidence of superiority over simple benchmarks at longer horizons, or for any of our other variables.

Bayesian Network-based GF-City Metropolitan Zone Modelling: an Approach Based on Location Quotient Resource Impulse Response Principle

Based on the evolution phenomenon and law of “location quotient”, this paper has studied the mapping relationship between image recognition of GF-City metropolitan area and the impulse response of local industrial resources. Based on the “location quotient” method, the level of local industry specialization in Foshan city was analysed, with the aid of VAR model. With the help of economic logic reasoning method, the VAR regression equation model improved design pattern analysis method was extracted in terms of the typical local industry semantics; a Bayesian network-based VAR model GF-City metropolitan area local industrial resources was constructed together with the impulse response network model. Based on the image recognition evaluation experiment of GF-City metropolitan area, the network combined Bayesian scoring function and search algorithm to carry out learning reasoning, and thus divided into local industrial grammar sub-network, image vocabulary sub-network and mapping relationship sub-network by modularization. According to the trend of node and conditional probability distribution, the image lexical structure and morphological organization characteristics were analysed, and the impulsive local industry resource impulse response knowledge rules were subsequently mined and characterized. Consequently, an example analysis proved the validity and applicability of the modelling method for the knowledge acquisition of the “location quotient” resource impulse response, so as to further analyse and perfect the rapid development of Foshan City with the drive of “GF-City metropolitan area” in the background of GHM Greater Bay Area.

Graph theory-based network analysis of regional uncertainties of the US Economy

We study the transmission mechanism of time-varying macroeconomic uncertainty across the US states. We analyse the contemporaneous and temporal causal relationships of uncertainty at the state level by utilising the Bayesian graphical VAR (BGVAR) model. Our results show that the current uncertainty of each state strongly depends on the previous level of uncertainty in its own state. We find evidence of strong contemporaneous and lagged dependence among US states. The analysis of this paper has important policy implications.

Unconventional monetary policy and the credit channel in the euro area

We disentangle credit supply and demand and we then embed this information into a Bayesian threshold VAR model to investigate the importance of the demand channel and the broad credit channel in the transmission of unconventional monetary policy on the macroeconomy during financial stress periods. We find that during such periods, UMP shocks boost aggregate demand for loans, increase agents’ net worth and revitalize credit to firms and households. In addition, counterfactual analysis suggests that non-standard policy measures aiming at stimulating loan demand and relaxing banks’ balance sheet constraints would provide a significant support to economic activity, prices and the financial sector.