 Bayesian Averaging over Many Dynamic Model Structures with Evidence on the Great Ratios and Liquidity Trap RiskRodney Strachan and Herman van Dijk No 08-096/4, Tinbergen Institute Discussion Papers from Tinbergen Institute Abstract: A Bayesian model averaging procedure is presented that makes use of a finite mixture of many model structures within the class of vector autoregressive (VAR) processes. It is applied to two empirical issues. First, stability of the Great Ratios in U.S. macro-economic time series is investigated, together with the effect of permanent shocks on business cycles. Second, the linear VAR model is extended to include a smooth transition function in a (monetary) equation and stochastic volatility in the disturbances. The risk of a liquidity trap in the U.S.A. and Japan is evaluated. Although this risk found to be reasonably high, we find only mild evidence that the monetary policy transmission mechanism is different and that central banks consider the expected cost of a liquidity trap in policy setting. Posterior probabilities of different models are evaluated using Markov chain Monte Carlo techniques. Keywords: Posterior probability; Grassman manifold; Orthogonal group; Cointegration; Model averaging; Stochastic trend; Impulse response; Vector autoregressive model; Great Ratios; Liquidity trap (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20080096 Access Statistics for this paper More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC. |
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