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Time varying VARs with inequality restrictions

Koop, G.M. and Potter, S. (2008) Time varying VARs with inequality restrictions. Working paper. University of Strathclyde. (Unpublished)

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    Abstract

    In many applications involving time-varying parameter VARs, it is desirable to restrict the VAR coe¢ cients 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, previous algorithms involve an approximation relating to a key integrating constant. Our algorithms are exact, not involving this approximation. In an application involving a commonly-used U.S. data set, we show how this approximation can be a poor one and present evidence that the algorithms proposed in this paper work well.

    Item type: Monograph (Working paper)
    ID code: 7731
    Keywords: bayesian, state space model, Markov chain monte carlo method, time varying parameters, Economic Theory
    Subjects: Social Sciences > Economic Theory
    Department: Strathclyde Business School > Economics
    Related URLs:
      Depositing user: Strathprints Administrator
      Date Deposited: 18 Mar 2009 16:08
      Last modified: 13 Mar 2012 12:39
      URI: http://strathprints.strath.ac.uk/id/eprint/7731

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