Bayesian Inference in the Time Varying Cointegration Model
AbstractThere are both theoretical and empirical reasons for believing that the parameters of macroeconomic models may vary over time. However, work with time-varying parameter models has largely involved Vector autoregressions (VARs), ignoring cointegration. This is despite the fact that cointegration plays an important role in informing macroeconomists on a range of issues. In this paper we develop time varying parameter models which permit cointegration. Time-varying parameter VARs (TVP-VARs) typically use state space representations to model the evolution of parameters. In this paper, we show that it is not sensible to use straightforward extensions of TVP-VARs when allowing for cointegration. Instead we develop a specication which allows for the cointegrating space to evolve over time in a manner comparable to the random walk variation used with TVP-VARs. The properties of our approach are investigated before developing a method of posterior simulation. We use our methods in an empirical investigation involving a permanent/transitory variance decomposition for ination.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 23-08.
Date of creation: Jan 2008
Date of revision: Jan 2008
Bayesian; time varying cointegration; error correctionmodel; reduced rank regression; Markov Chain Monte Carlo.;
Other versions of this item:
- Koop, Gary & Leon-Gonzalez, Roberto & Strachan, Rodney W., 2008. "Bayesian Inference in the Time Varying Cointegration Model," SIRE Discussion Papers 2008-60, Scottish Institute for Research in Economics (SIRE).
- Gary Koop & Roberto Leon-Gonzalez & Rodney Strachan, 2011. "Bayesian Inference in the Time Varying Cointegration Model," Working Papers 1121, University of Strathclyde Business School, Department of Economics.
- Gary Koop & Roberto Leon Gonzalez & Rodney W. Strachan, 2008. "Bayesian Inference in the Time Varying Cointegration Model," GRIPS Discussion Papers 08-01, National Graduate Institute for Policy Studies.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-ECM-2008-09-13 (Econometrics)
- NEP-ETS-2008-09-13 (Econometric Time Series)
- NEP-ORE-2008-09-13 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Centoni, Marco & Cubadda, Gianluca, 2003. "Measuring the business cycle effects of permanent and transitory shocks in cointegrated time series," Economics Letters, Elsevier, vol. 80(1), pages 45-51, July.
- Markus Jochmann & Gary Koop, 2011.
Working Paper Series
40_11, The Rimini Centre for Economic Analysis.
- Jochmann, Markus & Koop, Gary, 2011. "Regime-Switching Cointegration," SIRE Discussion Papers 2011-36, Scottish Institute for Research in Economics (SIRE).
- Markus Jochmann & Gary Koop, 2011. "Regime-Switching Cointegration," Working Papers 1125, University of Strathclyde Business School, Department of Economics.
- Jochmann, Markus & Koop, Gary, 2011. "Regime-Switching Cointegration," SIRE Discussion Papers 2011-60, Scottish Institute for Research in Economics (SIRE).
- Shaun P Vahey & Elizabeth C Wakerly, 2013. "Moving towards probability forecasting," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 3-8 Bank for International Settlements.
- Miroslav Plasil & Stepan Radkovsky & Pavel Rezabek, 2013. "Modelling bank loans to non-financial corporations," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 128-136 Czech National Bank, Research Department.
- Matteo Barigozzi & Antonio Conti, 2013. "On the Stability of Euro Area Money Demand and its Implications for Monetary Policy," LEM Papers Series 2013/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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