The scientific committee of the Milan Time Series Seminars is happy to host Dr. Marta Banbura, senior lead economist of the Europan Central Bank, for a seminar. The seminar time and place is
21 March 2024 at 12:15
University of Milan, Via Conservatorio 7, Seminar Room (2nd Floor)
Title: Advances in Modeling Time-Varying Trends using Large VARs: Order-Invariant Stochastic Volatility, Hierarchical Shrinkage and Outliers
Authors: Marta Banbura, Joshua C. C. Chan, Bowen Fu
Abstract: Measuring macroeconomic trends in a rapidly changing environment is challenging, as it is difficult to disentangle abrupt changes in trends from outliers. This paper tackles this challenge by developing a novel steady-state Bayesian VAR with a number of important features. First, the model incorporates a hierarchical shrinkage prior to the time-varying trends that favor smooth trend transitions, while it is also capable of detecting abrupt changes. Second, it features an outlier component that can address extreme observations such as COVID-19 outliers. Third, it builds upon an order-invariant stochastic volatility specification, as opposed to the commonly used Cholesky-based stochastic volatility models under which trend estimates may depend on how the endogenous variables enter the system. We illustrate the methodology using US and EA disaggregated inflation data.