Specification tests for time-varying parameter models with stochastic volatility
CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University
We propose an easy technique to test for time-variation in coefficients and volatilities. Specifically, by using a noncentered parameterization for state space models, we develop a method to directly calculate the relevant Bayes factor using the Savage-Dickey density ratio—thus avoiding the computation of the marginal likelihood altogether. The proposed methodology is illustrated via two empirical applications. In the first application we test for time-variation in the volatility of inflation in the G7 countries. The second application investigates if there is substantial time-variation in the NAIRU in the US.
Keywords: Bayesian model comparison; state space; inflation uncertainty; NAIRU (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mac and nep-ore
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Journal Article: Specification tests for time-varying parameter models with stochastic volatility (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2015-42
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