BVAR (litterman) Specifying different priors to different variables
Posted: Fri Sep 16, 2016 11:33 am
Dear all,
I am running a simple 3 variable VAR (gdp, interest rate, and inflation). How do I specify different mu1, l1, l2 for different variables under litterman prior? If three variables all share the same priors then the code would be:
var mod.bvar(prior=lit, mu1=1, l1=0.20, l2=0.99) 1 2 GDP INTEREST INFLATION
But how should I modify if I would assign mu1=0 for GDP and mu1=1 for inflation, for example?
Thank you
I am running a simple 3 variable VAR (gdp, interest rate, and inflation). How do I specify different mu1, l1, l2 for different variables under litterman prior? If three variables all share the same priors then the code would be:
var mod.bvar(prior=lit, mu1=1, l1=0.20, l2=0.99) 1 2 GDP INTEREST INFLATION
But how should I modify if I would assign mu1=0 for GDP and mu1=1 for inflation, for example?
Thank you