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Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."

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  • Marco Del Negro

Abstract

Cogley and Sargent provide us with a very useful tool for empirical macroeconomics: a Gibbs sampler for the estimation of VARs with drifting coefficients and volatilities. The authors apply the tool to a VAR with three variables-inflation, unemployment, and the nominal interest rate-and two lags. This tool is a serious competitor to the identified-VAR-cum-Markov-switching technology recently developed by Sims (1999) and Sims and Zha (2002) for the study of economies that are subject to regime changes. However, the Gibbs sampler suffers from a curse of dimensionality: as more variables or more lags are added to the system, the computational burden of the estimation quickly grows out of proportion. My suggestions here are mainly aimed at making the tool more flexible, and hence more widely applicable.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2003-26.

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Date of creation: 2003
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Handle: RePEc:fip:fedawp:2003-26

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Keywords: Equilibrium (Economics) ; Monetary policy ; Macroeconomics ; Inflation (Finance) ; Forecasting;

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  1. Christopher Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  2. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  3. Neil Shephard, 2005. "Stochastic volatility," Economics Series Working Papers 2005-W17, University of Oxford, Department of Economics.
  4. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper 98-12, Federal Reserve Bank of Atlanta.
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Cited by:
  1. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
  2. Mumtaz, Haroon & Sunder-Plassmann, Laura, 2010. "Time-varying dynamics of the real exchange rate. A structural VAR analysis," Bank of England working papers 382, Bank of England.
  3. Ellis W. Tallman, 2003. "Monetary policy and learning: Some implications for policy and research," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-9.
  4. Mumtaz, Haroon & Surico, Paolo, 2008. "Time-Varying Yield Curve Dynamics and Monetary Policy," Discussion Papers 23, Monetary Policy Committee Unit, Bank of England.

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