Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253393 
Year of Publication: 
2022
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 13/2022
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
The COVID-19 pandemic has led to enormous data movements that strongly affect parameters and forecasts from standard VARs. To address these issues, we propose VAR models with outlier-augmented stochastic volatility (SV) that combine transitory and persistent changes in volatility. The resulting density forecasts are much less sensitive to outliers in the data than standard VARs. Predictive Bayes factors indicate that our outlier-augmented SV model provides the best data fit for the pandemic period, as well as for earlier subsamples of relatively high volatility. In historical forecasting, outlier-augmented SV schemes fare at least as well as a conventional SV model.
Subjects: 
Bayesian VARs
stochastic volatility
outliers
pandemics
forecasts
JEL: 
C53
E17
E37
F47
ISBN: 
978-3-95729-881-2
Document Type: 
Working Paper

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