Dynamic probabilities of restrictions in state space models: an application to the Phillips curve
Koop, G.M. and LeonGonzalez, Roberto and Strachan, Rodney W. (2010) Dynamic probabilities of restrictions in state space models: an application to the Phillips curve. Journal of Business and Economic Statistics, 28 (3). pp. 370379. ISSN 07350015

Text (strathprints007738)
strathprints007738.pdf  Accepted Author Manuscript License: Unspecified Download (224kB)  Preview 
Abstract
Empirical macroeconomists are increasingly using models (e.g. regressions or Vector Autoregressions) where the parameters vary over time. State space methods are frequently used to specify the evolution of parameters in such models. In any application, there are typically restrictions on the parameters that a researcher might be interested in. This motivates the question of how to calculate the probability that a restriction holds at a point in time without assuming the restriction holds at all (or any other) points in time. This paper develops methods to answer this question. In particular, the principle of the SavageDickey density ratio is used to obtain the timevarying posterior probabilities of restrictions. We use our methods in a macroeconomic application involving the Phillips curve. Macroeconomists are interested in whether the longrun Phillips curve is vertical. This is a restriction for which we can calculate the posterior probability using our methods. Using U.S. data, the probability that this restriction holds tends to be fairly high, but decreases slightly over time (apart from a slight peak in the late 1970s). We also calculate the probability that another restriction, that the NAIRU is not identi…ed, holds. The probability that it holds fluctuates over time with most evidence in favor of the restriction occurring after 1990.
Item type:  Article 

ID code:  7738 
Keywords:  bayesian, state space model, SavageDickey density ratio, time varying parameter mode, economics, Economic Theory, Economics and Econometrics, Social Sciences (miscellaneous), Statistics and Probability, Statistics, Probability and Uncertainty 
Subjects:  Social Sciences > Economic Theory 
Department:  Strathclyde Business School > Economics 
Depositing user:  Strathprints Administrator 
Date deposited:  19 Mar 2009 15:08 
Last modified:  23 Oct 2017 00:04 
Related URLs:  
URI:  https://strathprints.strath.ac.uk/id/eprint/7738 
Export data: 