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Driving innovations in manufacturing: Open Access research from DMEM

Strathprints makes available Open Access scholarly outputs by Strathclyde's Department of Design, Manufacture & Engineering Management (DMEM).

Centred on the vision of 'Delivering Total Engineering', DMEM is a centre for excellence in the processes, systems and technologies needed to support and enable engineering from concept to remanufacture. From user-centred design to sustainable design, from manufacturing operations to remanufacturing, from advanced materials research to systems engineering.

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Time varying VARs with inequality restrictions

Koop, Gary and Potter, Simon (2008) Time varying VARs with inequality restrictions. Working paper. University of Strathclyde, Glasgow. (Unpublished)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.