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Bayesian inference in a time varying cointegration model

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Author Info

  • Koop, Gary
  • Leon-Gonzalez, Roberto
  • Strachan, Rodney W.

Abstract

There are both theoretical and empirical reasons for believing that the parameters of macroeconomic models may vary over time. However, work with time-varying parameter models has largely involved vector autoregressions (VARs), ignoring cointegration. This is despite the fact that cointegration plays an important role in informing macroeconomists on a range of issues. In this paper, we develop a new time varying parameter model which permits cointegration. We use a specification which allows for the cointegrating space to evolve over time in a manner comparable to the random walk variation used with TVP–VARs. The properties of our approach are investigated before developing a method of posterior simulation. We use our methods in an empirical investigation involving the Fisher effect.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 165 (2011)
Issue (Month): 2 ()
Pages: 210-220

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Handle: RePEc:eee:econom:v:165:y:2011:i:2:p:210-220

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Bayesian; Time varying cointegration; Error correction model; Reduced rank regression; Markov Chain Monte Carlo;

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Cited by:
  1. Miroslav Plasil & Stepan Radkovsky & Pavel Rezabek, 2013. "Modelling bank loans to non-financial corporations," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 128-136 Czech National Bank, Research Department.
  2. Matteo Barigozzi & Antonio Conti, 2013. "On the Stability of Euro Area Money Demand and its Implications for Monetary Policy," LEM Papers Series 2013/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Shaun P Vahey & Elizabeth C Wakerly, 2013. "Moving towards probability forecasting," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 3-8 Bank for International Settlements.
  4. Xianguo Huang & Roberto Leon-Gonzalez & Somrasri Yupho, 2012. "Financial Integration from a Time-Varying Cointegration Perspective," GRIPS Discussion Papers 12-07, National Graduate Institute for Policy Studies.

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