Strathprints logo
Strathprints Home | Open Access | Browse | Search | User area | Copyright | Help | Library Home | SUPrimo

Bayesian inference in the time varying cointegration model

Koop, G.M. and Leon-Gonzalez, Roberto and Strachan, Rodney W. (2008) Bayesian inference in the time varying cointegration model. Working paper. University of Strathclyde. (Unpublished)

[img]
Preview
PDF (strathprints007734.pdf)
strathprints007734.pdf

Download (359kB) | Preview

Abstract

There are both theoretical and empirical reasons for believing that the parameters of macroeconomic models may vary over time. However, work with time-varying parameter models has largely involved Vector autoregressions (VARs), ignoring cointegration. This is despite the fact that cointegration plays an important role in informing macroeconomists on a range of issues. In this paper we develop time varying parameter models which permit coin- tegration. Time-varying parameter VARs (TVP-VARs) typically use state space representations to model the evolution of parameters. In this paper, we show that it is not sensible to use straightforward extensions of TVP-VARs when allowing for cointegration. Instead we develop a speci cation which allows for the cointegrating space to evolve over time in a manner comparable to the random walk variation used with TVP-VARs. The properties of our approach are investigated before developing a method of posterior simulation. We use our methods in an empirical investigation involving a permanent/transitory variance decomposition for inflation.

Item type: Monograph (Working paper)
ID code: 7734
Keywords: bayesian, time varying cointegration, error correction model, reduced rank regression, markov chain, monte carlo method, Economic Theory
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Strathprints Administrator
Date Deposited: 18 Mar 2009 16:50
Last modified: 15 Apr 2015 09:04
URI: http://strathprints.strath.ac.uk/id/eprint/7734

Actions (login required)

View Item View Item