IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Bayesian analysis of coefficient instability in dynamic regressions

  • Emanuela Ciapanna

    ()

    (Bank of Italy)

  • Marco Taboga

    ()

    (Bank of Italy)

This paper proposes a Bayesian regression model with time-varying coefficients (TVC) that makes it possible to estimate jointly the degree of instability and the time-path of regression coefficients. Thanks to its computational tractability, the model proves suitable to perform the first (to our knowledge) Monte Carlo study of the finite-sample properties of a TVC model. Under several specifications of the data generating process, the proposed model�s estimation precision and forecasting accuracy compare favourably with those of other methods commonly used to deal with parameter instability. Furthermore, the TVC model leads to small losses of efficiency under the null of stability and it is robust to mis-specification, providing a satisfactory performance also when regression coefficients experience discrete structural breaks. As a demonstrative application, we use our TVC model to estimate the exposures of S&P 500 stocks to market-wide risk factors: we find that a vast majority of stocks have time-varying risk exposures and that the TVC model helps to forecast these exposures more accurately.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2011/2011-0836/en_tema_836.pdf
Download Restriction: no

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 836.

as
in new window

Length:
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bdi:wptemi:td_836_11
Contact details of provider: Postal:
Via Nazionale, 91 - 00184 Roma

Web page: http://www.bancaditalia.it

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Fabio Canova & Matteo Ciccarelli, 2007. "Estimating Multi-country VAR models," Discussion Papers 7_2007, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  2. James H. Stock & Mark W. Watson, 1994. "Evidence on structural instability in macroeconomic times series relations," Working Paper Series, Macroeconomic Issues 94-13, Federal Reserve Bank of Chicago.
  3. 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.
  4. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
  5. Kapetanios, George, 2008. "Bootstrap-based tests for deterministic time-varying coefficients in regression models," Computational Statistics & Data Analysis, Elsevier, vol. 53(2), pages 534-545, December.
  6. Fabio Canova & Luca Gambetti, 2003. "Structural changes in the US economy: is there a role for monetary policy?," Economics Working Papers 918, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008.
  7. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  8. J. Ghosh & Rahul Mukerjee, 1993. "Corrections to “Frequentist validity of highest posterior density regions in the multiparameter case”," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 45(3), pages 602-602, September.
  9. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  10. Joel Horowitz, 2000. "An Adaptive, Rate-Optimal Test of a Parametric Model Against a Nonparametric Alternative," Econometric Society World Congress 2000 Contributed Papers 0166, Econometric Society.
  11. Koop, Gary & Korobilis, Dimitris, 2010. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(4), pages 267-358, July.
  12. Chib, Siddhartha & Greenberg, Edward, 1995. "Hierarchical analysis of SUR models with extensions to correlated serial errors and time-varying parameter models," Journal of Econometrics, Elsevier, vol. 68(2), pages 339-360, August.
  13. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
  14. Smith, M. & Kohn, R., . "Nonparametric Regression using Bayesian Variable Selection," Statistics Working Paper _009, Australian Graduate School of Management.
  15. Thomas Sargent & Noah Williams & Tao Zha, 2004. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," NBER Working Papers 10764, National Bureau of Economic Research, Inc.
  16. Donald W.K. Andrews & Inpyo Lee & Werner Ploberger, 1992. "Optimal Changepoint Tests for Normal Linear Regression," Cowles Foundation Discussion Papers 1016, Cowles Foundation for Research in Economics, Yale University.
  17. J. Ghosh & Rahul Mukerjee, 1993. "Frequentist validity of highest posterior density regions in the multiparameter case," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 45(2), pages 293-302, June.
  18. Perron, Pierre & Zhu, Xiaokang, 2005. "Structural breaks with deterministic and stochastic trends," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 65-119.
  19. Liang, Feng & Paulo, Rui & Molina, German & Clyde, Merlise A. & Berger, Jim O., 2008. "Mixtures of g Priors for Bayesian Variable Selection," Journal of the American Statistical Association, American Statistical Association, vol. 103, pages 410-423, March.
  20. Koop, Gary & Leon-Gonzalez, Roberto & Strachan, Rodney W., 2009. "On the evolution of the monetary policy transmission mechanism," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 997-1017, April.
  21. repec:dau:papers:123456789/1908 is not listed on IDEAS
  22. Horowitz, Joel L & Spokoiny, Vladimir G, 2001. "An Adaptive, Rate-Optimal Test of a Parametric Mean-Regression Model against a Nonparametric Alternative," Econometrica, Econometric Society, vol. 69(3), pages 599-631, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_836_11. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.