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Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy

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  • Nakajima, Jouchi
  • Kasuya, Munehisa
  • Watanabe, Toshiaki

Abstract

This paper analyzes the time-varying parameter vector autoregressive (TVP-VAR) model for the Japanese economy and monetary policy. The parameters are allowed to follow a random walk process and estimated using the Markov chain Monte Carlo method. The empirical result reveals the time-varying structure of the Japanese economy and monetary policy during the period from 1981 to 2008. The marginal likelihoods of the TVP-VAR model and other fixed parameter VAR models are estimated for model comparison. The estimated marginal likelihoods indicate that the TVP-VAR model best fits the Japanese economic data.

Suggested Citation

  • Nakajima, Jouchi & Kasuya, Munehisa & Watanabe, Toshiaki, 2011. "Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 225-245, September.
  • Handle: RePEc:eee:jjieco:v:25:y:2011:i:3:p:225-245
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    Keywords

    Bayesian inference Markov chain Monte Carlo Monetary policy State space model Stochastic volatility Time-varying parameter vector autoregressive model;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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