March 25, 2014
Reduced-rank time-varying vector autoregressions
The standard time-varying VAR workhorse suffers from overparameterization, which is a serious problem as it limits the number of variables and lags that can be incorporated in the model.

Read also: CPB Discussion Paper 271 'Time variation in the dynamic effects of unanticipated changes in tax policy'.
As a solution for the overparameterization problem, we propose a new, more parsimonious time-varying VAR model setup with which we can reliably estimate larger models including more variables and/or more lags than was possible until now. The new model setup implies cross-equation restrictions on the time variation that are empirically supported, theoretically appealing, and make the Bayesian estimation procedure much faster.
Downloads
Pdf, 2.1 MB
Authors
Joris de Wind
Luca Gambetti
Related
CPB verkent mogelijkheden voor extra koopkrachtanalysesMeerdere factoren van invloed op gestegen inflatieBelastinggemotiveerde royaltystromen: omvang van misgelopen belastingenProjections September 2023 (MEV 2024), figuresPurchasing power measures prevent rise in poverty, government deficit remains unchanged