Efficient Posterior Simulation for Cointegrated Models with Priors On the Cointegration Space

Gary Koop, Roberto Leon-Gonzalez and Rodney Strachan

No 05/13, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

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 identified 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 efficient 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 efficient even than the posterior simulation methods which are used with identified versions of cointegration models.

Date: 2005-07, Revised 2006-04
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-ets
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Journal Article: Efficient Posterior Simulation for Cointegrated Models with Priors on the Cointegration Space (2010)
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