Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."
Cogley and Sargent provide us with a very useful tool for empirical macroeconomics: a Gibbs sampler for the estimation of VARs with drifting coefficients and volatilities. The authors apply the tool to a VAR with three variables-inflation, unemployment, and the nominal interest rate-and two lags. This tool is a serious competitor to the identified-VAR-cum-Markov-switching technology recently developed by Sims (1999) and Sims and Zha (2002) for the study of economies that are subject to regime changes. However, the Gibbs sampler suffers from a curse of dimensionality: as more variables or more lags are added to the system, the computational burden of the estimation quickly grows out of proportion. My suggestions here are mainly aimed at making the tool more flexible, and hence more widely applicable.
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- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986.
"Forecasting and conditional projection using realistic prior distribution,"
93, Federal Reserve Bank of Minneapolis.
- 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.
- Christopher A. Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar, pages -.
- Christopher A. Sims & Tao Zha, 1998.
"Does monetary policy generate recessions?,"
FRB Atlanta Working Paper
98-12, Federal Reserve Bank of Atlanta.
- Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
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