Large Order-Invariant Bayesian VARs with Stochastic Volatility

Joshua Chan, Gary Koop and Xuewen Yu (2023)
Journal of Business and Economic Statistics, forthcoming
[ Journal Version | Working Paper | Code ]

This code estimates a large Bayesian VAR with stochastic volatility that is invariant to the ordering of the endogenous variables.

The forecasting application involves VARs with 20 macroeconomic and financial variables. We find that the proposed order-invariant approach leads to the best forecasts and that some choices of variable ordering can lead to poor forecasts using a conventional, non-order invariant, approach.