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Bayesian near-boundary analysis in basic macroeconomic time series models

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  • de Pooter, M.D.
  • Ravazzolo, F.
  • Segers, R.
  • van Dijk, H.K.

Abstract

Several lessons learnt from a Bayesian analysis of basic macroeconomic time series models are presented for the situation where some model parameters have substantial posterior probability near the boundary of the parameter region. This feature refers to near-instability within dynamic models, to forecasting with near-random walk models and to clustering of several economic series in a small number of groups within a data panel. Two canonical models are used: a linear regression model with autocorrelation and a simple variance components model. Several well-known time series models like unit root and error correction models and further state space and panel data models are shown to be simple generalizations of these two canonical models for the purpose of posterior inference. A Bayesian model averaging procedure is presented in order to deal with models with substantial probability both near and at the boundary of the parameter region. Analytical, graphical and empirical results using U.S. macroeconomic data, in particular on GDP growth, are presented.

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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2008-13.

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Date of creation: 25 Aug 2008
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Handle: RePEc:ems:eureir:13055

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Related research

Keywords: Bayesian model averaging; Gibbs sampler; MCMC; autocorrelation; error correction models; nonstationarity; random effects panel data models; reduced rank models; state space models;

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References

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Citations

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Cited by:
  1. Billio, Monica & Casarin, Roberto & Ravazzolo, Francesco & van Dijk, Herman K., 2012. "Combination schemes for turning point predictions," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 402-412.
  2. Arnold Zellner & Tomohiro Ando & Nalan Basturk & Lennart Hoogerheide & Herman K. van Dijk, 2011. "Instrumental Variables, Errors in Variables, and Simultaneous Equations Models: Applicability and Limitations of Direct Monte Carlo," Tinbergen Institute Discussion Papers 11-137/4, Tinbergen Institute.
  3. Arnold Zellner (posthumously) & Tomohiro Ando & Nalan Basturk & Lennart Hoogerheide & Herman K. van Dijk, 2012. "Bayesian Analysis of Instrumental Variable Models: Acceptance-Rejection within Direct Monte Carlo," Tinbergen Institute Discussion Papers 12-098/III, Tinbergen Institute.
  4. Nomen Nescio, 2013. "Nomen Nescio," Tinbergen Institute Discussion Papers 12-095 not issued, Tinbergen Institute.
  5. Massimo Guidolin & Francesco Ravazzolo & Andrea Donato Tortora, 2011. "A Bayesian multi-factor model of instability in prices and quantities of risk in U.S. financial markets," Working Papers 2011-003, Federal Reserve Bank of St. Louis.

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