Adaptive Models and Heavy Tails
Davide Delle Monache and
Ivan Petrella
No 720, Working Papers from Queen Mary University of London, School of Economics and Finance
Abstract:
This paper proposes a novel and flexible framework to estimate autoregressive models with time-varying parameters. Our setup nests various adaptive algorithms that are commonly used in the macroeconometric literature, such as learning-expectations and forgetting-factor algorithms. These are generalized along several directions: specifically, we allow for both Student-t distributed innovations as well as time-varying volatility. Meaningful restrictions are imposed to the model parameters, so as to attain local stationarity and bounded mean values. The model is applied to the analysis of inflation dynamics. Allowing for heavy-tails leads to a significant improvement in terms of fit and forecast. Moreover, it proves to be crucial in order to obtain well-calibrated density forecasts.
Keywords: Time-varying parameters; Score-driven models; Heavy-tails; Adaptive algorithms; Inflation (search for similar items in EconPapers)
JEL-codes: C22 C51 C53 E31 (search for similar items in EconPapers)
Date: 2014-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://www.qmul.ac.uk/sef/media/econ/research/wor ... 2014/items/wp720.pdf (application/pdf)
Related works:
Working Paper: Adaptive models and heavy tails (2016) 
Working Paper: Adaptive models and heavy tails (2016) 
Working Paper: Adaptive Models and Heavy Tails (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:720
Access Statistics for this paper
More papers in Working Papers from Queen Mary University of London, School of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Nicholas Owen ( this e-mail address is bad, please contact ).