Bayesian inference in a time varying cointegration model

Gary Koop, Roberto Leon-Gonzalez, Rodney Strachan

Research output: Contribution to journalArticle

23 Citations (Scopus)

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 a new time varying parameter model which permits cointegration. We use a specification 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 the Fisher effect.
Original languageEnglish
Pages (from-to)210-220
Number of pages11
JournalJournal of Econometrics
Volume165
Issue number2
DOIs
Publication statusPublished - Dec 2011

Keywords

  • Bayesian
  • time varying cointegration
  • error correction model
  • reduced rank regression
  • Markov chain Monte Carlo

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