Nonparametric Estimation and Testing for Time-Varying VAR Models

Jiti Gao, Bin Peng () and Yayi Yan ()

No 3/22, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: Vector autoregressive (VAR) models are widely used in practical studies, e.g., forecasting, modelling policy transmission mechanism, and measuring connection of economic agents. To better capture the dynamics, this paper introduces a new class of time-varying VAR models in which the coefficients and covariance matrix of the error innovations are allowed to change smoothly over time. Accordingly, we establish a set of asymptotic properties including the impulse response analyses subject to structural VAR identification conditions, an information criterion to select the optimal lag, and a Wald-type test to determine the constant coefficients. Simulation studies are conducted to evaluate the theoretical findings. Finally, we demonstrate the empirical relevance and usefulness of the proposed methods through an application on US government spending multipliers.

Keywords: Time-varying impulse response; parameter stability; instrumental variable approach (search for similar items in EconPapers)
JEL-codes: C14 C32 E52 (search for similar items in EconPapers)
Pages: 56
Date: 2022
New Economics Papers: this item is included in nep-ecm and nep-eff
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