Global Bank Stress Test-2021-11-08-CEF
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Econometric Methodology: Panel BMA<br />
• Bayesian Model Averaging (BMA) for panel models, with sign constraints on long-run<br />
multipliers<br />
• Why BMA?<br />
‣ Avoid hand-picking models<br />
‣ Explicit account of model uncertainty → conditional forecasts more robust<br />
• Automatization of estimation: important… estimating 150+ models manually based on noisy<br />
rather low-quality data not quite feasible<br />
• Sign constraints: to make sure that results “make sense”, i.e., coefficient signs in line with<br />
theory, and resulting forecasts conditional on scenarios meaningful<br />
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