VAR Models with Non-Gaussian Shocks

Ching-Wai (Jeremy) Chiu, Haroon Mumtaz and Gabor Pinter

No 4, CReMFi Discussion Papers from CReMFi, School of Economics and Finance, QMUL

Abstract: We introduce a Bayesian VAR model with non-Gaussian disturbances that are modelled with a finite mixture of normal distributions. Importantly, we allow for regime switching among the different components of the mixture of normals. Our model is highly flexible and can capture distributions that are fat-tailed, skewed and even multimodal. We show that our model can generate large out-of-sample forecast gains relative to standard forecasting models, especially during tranquil periods. Our model forecasts are also competitive with those generated by the conventional VAR model with stochastic volatility.

Keywords: Bayesian VAR; Non-Gaussian shocks; Density Forecasting (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ets, nep-for and nep-ore
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https://www.qmul.ac.uk/sef/media/econ/research/cremfi/2016/DP4.pdf (application/pdf)

Related works:
Working Paper: VAR Models with Non-Gaussian Shocks (2016)
Working Paper: VAR models with non-Gaussian shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:qmm:wpaper:4

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