Milan Time Series Seminar: Marta Banbura (European Central Bank) @ University of Milan (not Bicocca)

Location: University of Milan, Via Conservatorio 7, Seminar Room (2nd Floor)

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.