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The Vector Floor and Ceiling Model

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  • Gary Koop

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  • Simon Potter

Abstract

This paper motivates and develops a nonlinear extension of the Vector Autoregressive model which we call the Vector Floor and Ceiling model. Bayesian and classical methods for estimation and testing are developed and compared in the context of an application involving U.S. macroeconomic data. In terms of statistical significance both classical and Bayesian methods indicate that the (Gaussian) linear model is inadequate. Using impulse response functions we investigate the economic significance of the statistical analysis. We find evidence of strong nonlinearities in the contemporaneous relationships between the variables and milder evidence of nonlinearity in the conditional mean.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp04-15.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/15.

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Date of creation: Jan 2000
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Handle: RePEc:lec:leecon:04/15

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Keywords: Nonlinearity; Bayesian; Vector Autoregression;

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