Does Bayesian shrinkage help to better reflect what happened during the subprime crisis?

► We study the contagion effects of a U.S. housing shock on OECD countries. ► We evaluate forecasting accuracy and structural analysis using different VARs. ► The largest specification outperforms the smallest one in terms of forecast accuracy. ► The MEDIUM VAR is sufficient to provide plausible impulse responses. ► The Bayesian shrinkage is a useful tool in the case of an international study.