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arXiv · 2206.08438

Fast and Accurate Variational Inference for Large Bayesian VARs with Stochastic Volatility

Joshua C. C. Chan·Xuewen Yu
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Abstract

We propose a new variational approximation of the joint posterior distribution of the log-volatility in the context of large Bayesian VARs. In contrast to existing approaches that are based on local approximations, the new proposal provides a global approximation that takes into account the entire support of the joint distribution. In a Monte Carlo study we show that the new global approximation is over an order of magnitude more accurate than existing alternatives. We illustrate the proposed methodology with an application of a 96-variable VAR with stochastic volatility to measure global bank network connectedness.

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Joshua C. C. Chan, Xuewen Yu. 2022-06-16. Fast and Accurate Variational Inference for Large Bayesian VARs with Stochastic Volatility. https://arxiv.org/abs/2206.08438

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