Large Time-Varying Parameter VARs

Koop, G. and Korobilis, D. (2013) Large Time-Varying Parameter VARs. Journal of Econometrics, 177(2), pp. 185-198. (doi: 10.1016/j.jeconom.2013.04.007)

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Abstract

In this paper, we develop methods for estimation and forecasting in large time-varying parameter vector autoregressive models (TVP-VARs). To overcome computational constraints, we draw on ideas from the dynamic model averaging literature which achieve reductions in the computational burden through the use forgetting factors. We then extend the TVP-VAR so that its dimension can change over time. For instance, we can have a large TVP-VAR as the forecasting model at some points in time, but a smaller TVP-VAR at others. 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.

Item Type:Articles
Additional Information:NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Econometrics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Korompilis Magkas, Professor Dimitris
Authors: Koop, G., and Korobilis, D.
Subjects:H Social Sciences > HA Statistics
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Econometrics
Publisher:Elsevier
ISSN:0304-4076
Copyright Holders:Copyright © 2013 Elsevier
First Published:First published in Journal of Econometrics
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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