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Bayesian Analysis of Latent Threshold Dynamic Models

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  • Jouchi Nakajima
  • Mike West
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    Abstract

    We discuss a general approach to dynamic sparsity modeling in multivariate time series analysis. Time-varying parameters are linked to latent processes that are thresholded to induce zero values adaptively, providing natural mechanisms for dynamic variable inclusion/selection. We discuss Bayesian model specification, analysis and prediction in dynamic regressions, time-varying vector autoregressions, and multivariate volatility models using latent thresholding. Application to a topical macroeconomic time series problem illustrates some of the benefits of the approach in terms of statistical and economic interpretations as well as improved predictions. Supplementary materials for this article are available online.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Business & Economic Statistics.

    Volume (Year): 31 (2013)
    Issue (Month): 2 (April)
    Pages: 151-164

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    Handle: RePEc:taf:jnlbes:v:31:y:2013:i:2:p:151-164

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    5. Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," IMES Discussion Paper Series 11-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
    6. Jouchi Nakajima & Mike West, 2012. "Dynamic Factor Volatility Modeling: A Bayesian Latent Threshold Approach," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 11(1), pages 116-153, December.
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    Cited by:
    1. Siem Jan Koopman & Geert Mesters, 2014. "Empirical Bayes Methods for Dynamic Factor Models," Tinbergen Institute Discussion Papers 14-061/III, Tinbergen Institute.
    2. Michaelis, Henrike & Watzka, Sebastian, 2014. "Are there Differences in the Effectiveness of Quantitative Easing in Japan over Time?," Discussion Papers in Economics 21087, University of Munich, Department of Economics.
    3. Eric Eisenstat & Joshua C.C. Chan & Rodney W. Strachan, 2014. "Stochastic Model Specification Search for Time-Varying Parameter VARs," CAMA Working Papers 2014-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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