Specification tests for time-varying parameter models with stochastic volatility

Joshua Chan

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We propose an easy technique to test for time-variation in coefficients and volatilities. Specifically, by using a noncentered parameterization for state space models, we develop a method to directly calculate the relevant Bayes factor using the Savage-Dickey density ratio—thus avoiding the computation of the marginal likelihood altogether. The proposed methodology is illustrated via two empirical applications. In the first application we test for time-variation in the volatility of inflation in the G7 countries. The second application investigates if there is substantial time-variation in the NAIRU in the US.

Keywords: Bayesian model comparison; state space; inflation uncertainty; NAIRU (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-11
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Specification tests for time-varying parameter models with stochastic volatility (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2015-42

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