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Large time-varying parameter VARs

  • Koop, Gary
  • Korobilis, Dimitris

In this paper we develop methods for estimation and forecasting in large time-varying parameter vector autoregressive models (TVP-VARs). To overcome computational constraints with likelihood-based estimation of large systems, we rely on Kalman filter estimation with forgetting factors. We also draw on ideas from the dynamic model averaging literature and extend the TVP-VAR so that its dimension can change over time. A final extension lies in the development of a new method for estimating, in a time-varying manner, the parameter(s) of the shrinkage priors commonly-used with large VARs. These extensions are operationalized through the use of forgetting factor methods and are, thus, computationally simple. An empirical application involving forecasting inflation, real output, and interest rates demonstrates the feasibility and usefulness of our approach.

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File URL: http://mpra.ub.uni-muenchen.de/38591/1/MPRA_paper_38591.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38591.

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Date of creation: 28 Feb 2012
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Handle: RePEc:pra:mprapa:38591
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  1. Koop, Gary & Korobilis, Dimitris, 2009. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," MPRA Paper 20125, University Library of Munich, Germany.
  2. Marcellino, Massimiliano & Stock, James H & Watson, Mark W, 2005. "A Comparison of Direct and Iterated Multistep AR Methods for Forecasting Macroeconomic Time Series," CEPR Discussion Papers 4976, C.E.P.R. Discussion Papers.
  3. Carriero, Andrea & Clark, Todd & Marcellino, Massimiliano, 2012. "Common Drifting Volatility in Large Bayesian VARs," CEPR Discussion Papers 8894, C.E.P.R. Discussion Papers.
  4. Gary Koop, 2010. "Forecasting with Medium and Large Bayesian VARs," Working Paper Series 43_10, The Rimini Centre for Economic Analysis.
  5. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
  6. Gary Koop & Dimitris Korobilis, 2011. "Forecasting Inflation Using Dynamic Model Averaging," Working Papers 1119, University of Strathclyde Business School, Department of Economics.
  7. Joshua C.C. Chan & Gary Koop & Roberto Leon-Gonzalez & Rodney W. Strachan, 2010. "Time Varying Dimension Models," Working Paper Series 44_10, The Rimini Centre for Economic Analysis.
  8. Gary Koop & Roberto Leon-Gonzalez & Rodney W. Strachan, 2008. "On the Evolution of Monetary Policy," Working Paper Series 24-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  9. 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.
  10. D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," CEPR Discussion Papers 7542, C.E.P.R. Discussion Papers.
  11. Carriero, A. & Kapetanios, G. & Marcellino, M., 2009. "Forecasting exchange rates with a large Bayesian VAR," International Journal of Forecasting, Elsevier, vol. 25(2), pages 400-417.
  12. Domenico Giannone & Michèle Lenza & Giorgio E. Primiceri, 2012. "Prior Selection for Vector Autoregressions," Working Papers ECARES ECARES 2012-002, ULB -- Universite Libre de Bruxelles.
  13. Fabio Canova & Matteo Ciccarelli, 2009. "Estimating Multicountry Var Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 929-959, 08.
  14. Dimitris Korobilis, 2013. "Var Forecasting Using Bayesian Variable Selection," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 204-230, 03.
  15. 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.
  16. Cogley, Timothy W. & Morozov, Sergei & Sargent, Thomas J., 2003. "Bayesian fan charts for UK inflation: Forecasting and sources of uncertainty in an evolving monetary system," CFS Working Paper Series 2003/44, Center for Financial Studies (CFS).
  17. Gary Koop & Markus Jochmann & Rodney W. Strachan, 2008. "Bayesian Forecasting using Stochastic Search Variable Selection in a VAR Subject to Breaks," Working Paper Series 19-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  18. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  19. repec:acb:camaaa:2011-28 is not listed on IDEAS
  20. Carriero, Andrea & Clark, Todd & Marcellino, Massimiliano, 2011. "Bayesian VARs: Specification Choices and Forecast Accuracy," CEPR Discussion Papers 8273, C.E.P.R. Discussion Papers.
  21. Giannone, Domenico & Lenza, Michele & Momferatou, Daphne & Onorante, Luca, 2014. "Short-term inflation projections: A Bayesian vector autoregressive approach," International Journal of Forecasting, Elsevier, vol. 30(3), pages 635-644.
  22. Dangl, Thomas & Halling, Michael, 2012. "Predictive regressions with time-varying coefficients," Journal of Financial Economics, Elsevier, vol. 106(1), pages 157-181.
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