Bayesian model averaging in vector autoregressive processes with an investigation of stability of the US great ratios and risk of a liquidity trap in the USA, UK and Japan
AbstractA Bayesian model averaging procedure is presented within the class ofvector autoregressive (VAR) processes and applied to two empirical issues.First, stability of the "Great Ratios" in U.S. macro-economic time series isinvestigated, together with the presence and eÂ¤ects of permanent shocks.Measures on manifolds are employed in order to elicit uniform priors onsubspaces defned by particular structural features of linear VARs. Second,the VAR model is extended to include a smooth transition function in a(monetary) equation and stochastic volatility in the disturbances. The riskof a liquidity trap in the USA, UK and Japan is evaluated, together with theexpected cost of a policy adjustment of central banks. Posterior probabilitiesof different models are evaluated using Markov chain Monte Carlo techniques.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2007-11.
Date of creation: 25 Mar 2007
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cointegration; Grassman manifold; great ratios; impulse response; liquidity trap; model averaging; posterior probability; stochastic trend; orthogonal group; vector autoregressive model;
Other versions of this item:
- Rodney Strachan & Herman K. van Dijk, . "Bayesian Model Averaging in Vector Autoregressive Processes with an Investigation of Stability of the US Great Ratios and Risk of a Liquidity Trap in the USA, UK and Japan," MRG Discussion Paper Series 1407, School of Economics, University of Queensland, Australia.
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