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Time Instability of the U.S. Monetary System: Multiple Break Tests and Reduced Rank TVP VAR

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  • Dukpa Kim
  • Yohei Yamamoto

Abstract

Earlier attempts to find evidence of time varying coefficients in the U.S. monetary vector autoregression have been only partially successful. Structural break tests applied to typical data sets often fail to reject the null hypothesis of no break. Bayesian inferences using time varying parameter vector autoregressions provide posterior median values that capture some important movements over time, but the associated confidence intervals are often very wide and make the entire results less conclusive. We apply recently developed multiple structural break tests and find statistically significant evidence of time varying coefficients. We also develop a reduced rank time varying parameter vector autoregression with multivariate stochastic volatility. Our model has a smaller number of free parameters thereby yielding tighter confidence intervals than previously employed unrestricted time varying parameter models.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-279.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-279.

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Date of creation: Feb 2013
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Handle: RePEc:hst:ghsdps:gd12-279

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Keywords: Time Varying Monetary Policy Rule; Ináation Persistence; Multivariate Stochastic Volatility;

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Cited by:
  1. Eddie Gerba & Klemens Hauzenberger, 2013. "Estimating US Fiscal and Monetary Interactions in a Time Varying VAR," Studies in Economics 1303, Department of Economics, University of Kent.

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