Shrinkage in the Time-Varying Parameter Model Framework Using the R Package shrinkTVP

Peter Knaus, Angela Bitto-Nemling, Annalisa Cadonna and Sylvia Fr\"uhwirth-Schnatter

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Abstract: Time-varying parameter (TVP) models are widely used in time series analysis to flexibly deal with processes which gradually change over time. However, the risk of overfitting in TVP models is well known. This issue can be dealt with using appropriate global-local shrinkage priors, which pull time-varying parameters towards static ones. In this paper, we introduce the R package shrinkTVP (Knaus, Bitto-Nemling, Cadonna, and Fr\"uhwirth-Schnatter 2019), which provides a fully Bayesian implementation of shrinkage priors for TVP models, taking advantage of recent developments in the literature, in particular that of Bitto and Fr\"uhwirth-Schnatter (2019). The package shrinkTVP allows for posterior simulation of the parameters through an efficient Markov Chain Monte Carlo (MCMC) scheme. Moreover, summary and visualization methods, as well as the possibility of assessing predictive performance through log predictive density scores (LPDSs), are provided. The computationally intensive tasks have been implemented in C++ and interfaced with R. The paper includes a brief overview of the models and shrinkage priors implemented in the package. Furthermore, core functionalities are illustrated, both with simulated and real data.

Date: 2019-07, Revised 2020-11
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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