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Bayesian Inference in a Time Varying Cointegration Model

  • Gary Koop

    ()

  • Roberto Leon-Gonzales

    ()

  • Rodney W Strachan

    ()

There 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 cointegrations. This is despite the fact that cointegration plays an important role in informing macroeconomists on a range of issues. In this paper we develop a new time varying parameter model which permits cointegration. We use a specification 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 the Fisher effect.

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File URL: https://cama.crawford.anu.edu.au/pdf/working-papers/2011/252011.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2011-25.

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Length: 37 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:een:camaaa:2011-25
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