Efficient posterior simulation in cointegration models with priors on the cointegration space

G.M. Koop, Roberto Leon-Gonzalez, Rodney W. Strachan

Research output: Working paper

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Abstract

A message coming out of the recent Bayesian literature on cointegration is that it is important to elicit a prior on the space spanned by the cointegrating vectors (as opposed to a particular identi…ed choice for these vectors). In this note, we discuss a sensible way of eliciting such a prior. Furthermore, we develop a collapsed Gibbs sampling algorithm to carry out e¢ cient posterior simulation in cointegration models. The computational advantages of our algorithm are most pronounced with our model, since the form of our prior precludes simple posterior simulation using conventional methods (e.g. a Gibbs sampler involves non-standard posterior conditionals). However, the theory we draw upon implies our algorithm will be more e¢ cient even than the posterior simulation methods which are used with identi…ed versions of cointegration models.
Original languageEnglish
Place of PublicationLeicester
Number of pages12
Publication statusPublished - Jul 2005

Publication series

NameDepartment of Economics Working Papers
PublisherUniversity of Leicester
Volume05/13

Fingerprint

Cointegration
Simulation
Gibbs Sampler
Gibbs Sampling
Simulation Methods
Model
Imply

Keywords

  • posterior simulation
  • cointegration models
  • cointegration space
  • bayesian
  • economics
  • statistics

Cite this

Koop, G. M., Leon-Gonzalez, R., & Strachan, R. W. (2005). Efficient posterior simulation in cointegration models with priors on the cointegration space. (Department of Economics Working Papers; Vol. 05/13). Leicester.
Koop, G.M. ; Leon-Gonzalez, Roberto ; Strachan, Rodney W. / Efficient posterior simulation in cointegration models with priors on the cointegration space. Leicester, 2005. (Department of Economics Working Papers).
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Koop, GM, Leon-Gonzalez, R & Strachan, RW 2005 'Efficient posterior simulation in cointegration models with priors on the cointegration space' Department of Economics Working Papers, vol. 05/13, Leicester.

Efficient posterior simulation in cointegration models with priors on the cointegration space. / Koop, G.M.; Leon-Gonzalez, Roberto; Strachan, Rodney W.

Leicester, 2005. (Department of Economics Working Papers; Vol. 05/13).

Research output: Working paper

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N2 - A message coming out of the recent Bayesian literature on cointegration is that it is important to elicit a prior on the space spanned by the cointegrating vectors (as opposed to a particular identi…ed choice for these vectors). In this note, we discuss a sensible way of eliciting such a prior. Furthermore, we develop a collapsed Gibbs sampling algorithm to carry out e¢ cient posterior simulation in cointegration models. The computational advantages of our algorithm are most pronounced with our model, since the form of our prior precludes simple posterior simulation using conventional methods (e.g. a Gibbs sampler involves non-standard posterior conditionals). However, the theory we draw upon implies our algorithm will be more e¢ cient even than the posterior simulation methods which are used with identi…ed versions of cointegration models.

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Koop GM, Leon-Gonzalez R, Strachan RW. Efficient posterior simulation in cointegration models with priors on the cointegration space. Leicester. 2005 Jul. (Department of Economics Working Papers).