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Non-Linear Models: Where Do We Go Next - Time Varying Parameter Models?

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Author Info

  • Granger Clive W.J.

    ()
    (University of California, San Diego)

Abstract

Although linear models have been the central focus of econometrics for most of the twentieth century, great developments in non-linear models took place from the latter part of the century. This paper questions the future development of non-linear models in economics and shows (via White's Theorem) that any non-linear model can be approximated by a time-varying parameter linear model. Compared with non-linear models, multi-step forecasts are more easily prepared using time-varying parameter models, while they are also more readily interpretable and theoretical results on aggregation are straightforward to obtain. Nevertheless, there is some evidence that subtle non-linearities may exist in macroeconomic time series.

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File URL: http://www.degruyter.com/view/j/snde.2008.12.3/snde.2008.12.3.1639/snde.2008.12.3.1639.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 12 (2008)
Issue (Month): 3 (September)
Pages: 1-11

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Handle: RePEc:bpj:sndecm:v:12:y:2008:i:3:n:1

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Cited by:
  1. Hall, Stephen G. & Hondroyiannis, George & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Is the relationship between prices and exchange rates homogeneous?," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 411-438.
  2. Zsolt Darvas, 2009. "Monetary Transmission in three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions," Working Papers 0903, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest, revised 30 Apr 2012.
  3. Stephen Hall & Amangeldi Kenjegaliev & P.A.V.B. Swamy & George S. Tavlas, 2013. "Measuring Currency Pressures: The Cases of the Japanese Yen, the Chinese Yuan, and the U.K. Pound," Discussion Papers in Economics 13/10, Department of Economics, University of Leicester.
  4. Sergey Voronin & Jarmo Partanen, 2013. "Price Forecasting in the Day-Ahead Energy Market by an Iterative Method with Separate Normal Price and Price Spike Frameworks," Energies, MDPI, Open Access Journal, vol. 6(11), pages 5897-5920, November.
  5. Yoon, Gawon, 2012. "Some properties of periodically collapsing bubbles," Economic Modelling, Elsevier, vol. 29(2), pages 299-302.
  6. Tierney, Heather L.R., 2009. "A Local Examination for Persistence in Exclusions-from-Core Measures of Inflation Using Real-Time Data," MPRA Paper 13383, University Library of Munich, Germany, revised 03 Feb 2009.
  7. Valcarcel, Victor J. & Wohar, Mark E., 2013. "Changes in the oil price-inflation pass-through," Journal of Economics and Business, Elsevier, vol. 68(C), pages 24-42.
  8. Tierney, Heather L.R., 2009. "Evaluating Exclusion-from-Core Measures of Inflation using Real-Time Data," MPRA Paper 17856, University Library of Munich, Germany.
  9. Valcarcel, Victor J., 2012. "The dynamic adjustments of stock prices to inflation disturbances," Journal of Economics and Business, Elsevier, vol. 64(2), pages 117-144.

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