Sims zha 1996

ABSTRACT: It is well known that a high degree of positive dependency among the errors generally leads to 1 serious underestimation of standard errors for regression coefficients; 2 prediction intervals that are excessively wide.

Autocorrelation levels of The results from 10, simulation revealed that BVAR model with loose prior is suitable for negative autocorrelations and BVAR model with tight prior is suitable for positive autocorrelations in the short term. While for medium term, the BVAR model with loose prior is suitable for the autocorrelation levels considered except in few cases. Lastly, for long term, the classical VAR is suitable for all the autocorrelation levels considered except in some cases where the BVAR models are preferred.

This work therefore concludes that the performance of the classical VAR and Sims-Zha Bayesian VAR varies in terms of the autocorrelation levels and the time series lengths.

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