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The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs.

Strathprints serves world leading Open Access research by the University of Strathclyde, including research by the Strathclyde Institute of Pharmacy and Biomedical Sciences (SIPBS), where research centres such as the Industrial Biotechnology Innovation Centre (IBioIC), the Cancer Research UK Formulation Unit, SeaBioTech and the Centre for Biophotonics are based.

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Time varying VARs with inequality restrictions

Koop, Gary and Potter, Simon M. (2011) Time varying VARs with inequality restrictions. Journal of Economic Dynamics and Control, 35 (7). pp. 1126-1138. ISSN 0165-1889

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Abstract

In many applications involving time-varying parameter VARs, it is desirable to restrict the VAR coefficients at each point in time to be non-explosive. This is an example of a problem where inequality restrictions are imposed on states in a state space model. In this paper, we describe how existing MCMC algorithms for imposing such inequality restrictions can work poorly (or not at all) and suggest alternative algorithms which exhibit better performance. Furthermore, we show that previous algorithms involve an approximation relating to a key prior integrating constant. Our algorithms are exact, not involving this approximation. In an application involving a commonly used U.S. data set, we present evidence that the algorithms proposed in this paper work well.