Introducing sspaneltvp: a code to estimating state-space time varying parameter models in panels. An application to Okun’s law

Mariam Camarero, Juan Sapena and Cecilio Tamarit
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Juan Sapena: Economics and Business Department. Catholic University of Valencia

No 2405, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper introduces a new code that provides researchers with a complete toolbox for estimating state-space time-varying parameter models. Our proposal extends the simple seminal framework into a panel-data one, combining both fixed (either common or countryspecific) and varying components. Under specific conditions, this setting becomes a meanreverting model, where the mean fixed parameter may include a deterministic trend. Regarding the transition equation, we allow for estimating different autoregressive alternatives and control instruments in the transition equation, whose coefficients can be set up either common or idiosyncratic (this is particularly interesting for detecting asymmetries among individuals (countries) to common shocks. Furthermore, the code written in GAUSS allows for introducing restrictions regarding the variances of both the transition and measurement equations. Finally, we perform an empirical application to explore Okun’s Law for a panel of EU peripheral countries during the period 1965-2021.

Keywords: State Space models; Kalman Filter; Time-varying parameters; Okun’s law (search for similar items in EconPapers)
JEL-codes: C23 F32 F36 (search for similar items in EconPapers)
Date: 2024-01
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