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Just presented at NBER-SI: Addressing COVID-19 Outliers in BVARs w/SV

posted Jul 17, 2021, 5:00 AM by Elmar Mertens
At the NBER Summer Institute, I just presented joint work with A Carriero, M Marcellino and T Clark on handling outliers in VAR models with outlier-adjusted SV. Such models are not only needed to handle the extreme data witnessed since the onset of COVID-19, but also outliers in pre-pandemic data. Our preferred specification combines a discrete mixture of infrequent but huge spikes in volatility with regularly recurring shocks from fat-tailed (student t) distributions. In US data since the 1970s, our out-of-sample simulations document consistent benefits of the approach except during the tranquil times of the Great Moderation in the 1990s and early 2000's

Slides are here. Paper here. More here. A few selected charts below.