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Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."

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Abstract

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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  • Marco Del Negro, 2003. "Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."," FRB Atlanta Working Paper 2003-26, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2003-26
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    References listed on IDEAS

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    1. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
    2. 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.
    3. Christopher A. Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    4. Thomas Sargent & Noah Williams & Tao Zha, 2009. "The Conquest of South American Inflation," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 211-256, April.
    5. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(2), pages 231-272, April.
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    Cited by:

    1. Haroon Mumtaz & Paolo Surico, 2009. "Time-varying yield curve dynamics and monetary policy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 895-913.
    2. Abdurrahman Nazif Çatık & Mehmet Karaçuka & Barış Gök, 2016. "A Time-Varying Parameter VAR Investigation of the Exchange Rate Pass-Through in Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(5), pages 563-579, December.
    3. Ellis W. Tallman, 2003. "Monetary policy and learning: Some implications for policy and research," Economic Review, Federal Reserve Bank of Atlanta, vol. 88(Q3), pages 1-9.
    4. Haroon Mumtaz & Laura Sunder-Plassmann, 2010. "Time-varying dynamics of the real exchange rate. A structural VAR analysis," Bank of England Staff Working Paper series 382, Bank of England.
    5. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.

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