Manfred M. Fischer, Niko Hauzenberger, Florian Huber, Michael Pfarrhofer
arXiv 26 Feb 2021 · Econometrics
arXiv:2102.13393 · PDF · DOI · OpenAlex · Extracted main text
Time-varying parameter (TVP) regressions commonly assume that time-variation in the coefficients is determined by a simple stochastic process such as a random walk. While such models are capable of capturing a wide range of dynamic patterns, the true nature of time variation might stem from other sources, or arise from different laws of motion. In this paper, we propose a flexible TVP VAR that assumes the TVPs to depend on a panel of partially latent covariates. The latent part of these covariates differ in their state dynamics and thus capture smoothly evolving or abruptly changing coefficients. To determine which of these covariates are important, and thus to decide on the appropriate state evolution, we introduce Bayesian shrinkage priors to perform model selection. As an empirical application, we forecast the US term structure of interest rates and show that our approach performs well relative to a set of competing models. We then show how the model can be used to explain structural breaks in coefficients related to the US yield curve.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Joshua CC Chan, Eric Eisenstat, and Rodney Strachan (2020) Reducing the state space dimension in a large TVP-VAR | 0.811 | 4 | 2 | 100% |
| 2 | Timothy Cogley and Thomas J. Sargent (2005) Drifts and volatilities: Monetary policies and outcomes in the post WWII US | 0.737 | 3 | 2 | 100% |
| 3 | Francis X Diebold and Canlin Li (2006) Forecasting the term structure of government bond yields | 0.737 | 3 | 2 | 100% |
| 4 | Giorgio Primiceri (2005) Time varying structural autoregressions and monetary policy | 0.737 | 3 | 2 | 100% |
| 5 | Christopher A Sims and Tao Zha (2006) Were there regime switches in US monetary policy? | 0.737 | 3 | 2 | 100% |
| 6 | Carlos M Carvalho, Nicholas G Polson, and James G Scott (2010) The horseshoe estimator for sparse signals | 0.644 | 2 | 2 | 100% |
| 7 | Gary Koop, Roberto Leon-Gonzalez, and Rodney W Strachan (2009) On the evolution of the monetary policy transmission mechanism | 0.644 | 2 | 2 | 100% |
| 8 | Thomas Dangl and Michael Halling (2012) Predictive regressions with time-varying coefficients | 0.511 | 2 | 1 | 100% |
| 9 | Thomas J Sargent and Paolo Surico (2011) Two illustrations of the quantity theory of money: Breakdowns and revivals | 0.511 | 2 | 1 | 100% |
| 10 | Sylvia Frühwirth-Schnatter and Helga Wagner (2010) Stochastic model specification search for Gaussian and partial non-Gaussian state space models | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 36 scored citations.