We propose a new variational approximation of the joint posterior distribution of the logvolatility 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. Our measure is able to detect the drastic increase in global bank network connectedness much earlier than rolling-window estimates from a homoscedastic VAR.

Many popular specifications for Vector Autoregressions (VARs) with multivariate stochastic volatility are not invariant to the way the variables are ordered due to the use of a Cholesky decomposition for the error covariance matrix. We show that the order invariance problem in existing approaches is likely to become more serious in large VARs. We propose the use of a specification which avoids the use of this Cholesky decomposition. We show that the presence of multivariate stochastic volatility allows for identification of the proposed model and prove that it is invariant to ordering. We develop a Markov Chain Monte Carlo algorithm which allows for Bayesian estimation and prediction. In exercises involving artificial and real macroeconomic data, we demonstrate that the choice of variable ordering can have non-negligible effects on empirical results. In a macroeconomic forecasting exercise involving VARs with 20 variables we find that our order-invariant approach leads to the best forecasts and that some choices of variable ordering can lead to poor forecasts using a conventional, non-order invariant, approach.

Graph-based causal inference has recently been successfully applied to explore system reliability and to predict failures in order to improve systems. One popular causal analysis following Pearl and Spirtes et al. to study causal relationships embedded in a system is to use a Bayesian network (BN). However, certain causal constructions that are particularly pertinent to the study of reliability are difficult to express fully through a BN. Our recent work demonstrated the flexibility of using a Chain Event Graph (CEG) instead to capture causal reasoning embedded within engineers’ reports. We demonstrated that an event tree rather than a BN could provide an alternative framework that could capture most of the causal concepts needed within this domain. In particular, a causal calculus for a specific type of intervention, called a remedial intervention, was devised on this tree-like graph. In this paper, we extend the use of this framework to show that not only remedial maintenance interventions but also interventions associated with routine maintenance can be well-defined using this alternative class of graphical model. We also show that the complexity in making inference about the potential relationships between causes and failures in a missing data situation in the domain of system reliability can be elegantly addressed using this new methodology. Causal modelling using a CEG is illustrated through examples drawn from the study of reliability of an energy distribution network.

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