A Large Bayesian Vector Autoregression Model for Russia
24 Pages Posted: 16 Dec 2014 Last revised: 17 May 2016
Date Written: December 4, 2014
Abstract
We apply an econometric approach developed specifically to address the ‘curse of dimensionality’ in Russian data and estimate a Bayesian vector autoregression model comprising 14 major domestic real, price and monetary macroeconomic indicators as well as external sector variables. We conduct several types of exercise to validate our model: impulse response analysis, recursive forecasting and counter factual simulation. Our results demonstrate that the employed methodology is highly appropriate for economic modelling in Russia. We also show that post-crisis real sector developments in Russia could be accurately forecast if conditioned on the oil price and EU GDP (but not if conditioned on the oil price alone). Publication keywords: Bayesian vector autoregression, forecasting, Russia
JEL Classification: E32, E44, E47, C32
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