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Bayesian Inference in a Time Varying Cointegration Model

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  • Gary Koop

    ()

  • Roberto Leon-Gonzales

    ()

  • Rodney W Strachan

    ()

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 cointegrations. 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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2011/252011.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-25.

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Length: 37 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:een:camaaa:2011-25

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

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