Bayesian inference in a cointegrating panel data model

Gary Koop, Roberto Leon-Gonzalez and Rodney Strachan

A chapter in Bayesian Econometrics, 2008, pp 433-469 from Emerald Group Publishing Limited

Abstract: This paper develops methods of Bayesian inference in a cointegrating panel data model. This model involves each cross-sectional unit having a vector error correction representation. It is flexible in the sense that different cross-sectional units can have different cointegration ranks and cointegration spaces. Furthermore, the parameters that characterize short-run dynamics and deterministic components are allowed to vary over cross-sectional units. In addition to a noninformative prior, we introduce an informative prior which allows for information about the likely location of the cointegration space and about the degree of similarity in coefficients in different cross-sectional units. A collapsed Gibbs sampling algorithm is developed which allows for efficient posterior inference. Our methods are illustrated using real and artificial data.

Date: 2008
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Related works:
Working Paper: Bayesian Inference in a Cointegrating Panel Data Model (2007)
Working Paper: Bayesian Inference in a Cointegrating Panel Data Model (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(08)23013-6

DOI: 10.1016/S0731-9053(08)23013-6

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