(), Gregor Kastner
() and Martin Feldkircher
Florian Huber: Department of Economics, Vienna University of Economics and Business
Gregor Kastner: Department of Statistics and Mathematics, Vienna University of Economics and Business
Martin Feldkircher: Oesterreichische Nationalbank (OeNB)
Abstract: We provide a flexible means of estimating time-varying parameter models in a Bayesian framework. By specifying the state innovations to be characterized trough a threshold process that is driven by the absolute size of parameter changes, our model detects at each point in time whether a given regression coefficient is constant or time-varying. Moreover, our framework accounts for model uncertainty in a data-based fashion through Bayesian shrinkage priors on the initial values of the states. In a simulation, we show that our model reliably identifies regime shifts in cases where the data generating processes display high, moderate, and low num- bers of movements in the regression parameters. Finally, we illustrate the merits of our approach by means of two applications. In the first application we forecast the US equity premium and in the second application we investigate the macroeconomic effects of a US monetary policy shock.
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