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Bayesian Inference in a Cointegrating Panel Data Model

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Author Info

  • Gary Koop

    ()
    (University of Strathclyde, UK and Rimini Centre for Economic Analysis, Rimini, Italy)

  • Roberto Leon-Gonzalez

    ()
    (University of Leicester, UK and University of Queensland)

  • Rodney Strachan

    ()
    (University of Queensland)

Abstract

This paper develops methods of Bayesian inference in a cointegrating panel data model. This model involves each cross-sectional unit having a vector error correction representation. It is flexible in the sense that different cross-sectional units can have different cointegration ranks and cointegration spaces. Furthermore, the parameters which characterize short-run dynamics and deterministic components are allowed to vary over cross-sectional units. In addition to a noninformative prior, we introduce an informative prior which allows for information about the likely location of the cointegration space and about the degree of similarity in coefficients in different cross-sectional units. A collapsed Gibbs sampling algorithm is developed which allows for efficient posterior inference. Our methods are illustrated using real and artificial data.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 02-07.

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Date of creation: Jul 2007
Date of revision: Jul 2007
Handle: RePEc:rim:rimwps:02-07

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Related research

Keywords: Bayesian; panel data cointegration; error correction model; reduced rank regression; Markov Chain Monte Carlo.;

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References

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  1. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
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Cited by:
  1. Sylvia Kaufmann & Johann Scharler, 2013. "Bank-Lending Standards, Loan Growth and the Business Cycle in the Euro Area," Working Papers 2013-34, Faculty of Economics and Statistics, University of Innsbruck.
  2. Jochmann, Markus & Koop, Gary, 2011. "Regime-Switching Cointegration," SIRE Discussion Papers 2011-36, Scottish Institute for Research in Economics (SIRE).
  3. Tareq Sadeq, 2008. "Bayesian Analysis of DSGE models: A Panel Approach," Documents de recherche 08-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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