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A General Framework for Observation Driven Time-Varying Parameter Models

Tinbergen Institute Discussion Paper No. 08-108/4

54 Pages Posted: 11 Nov 2008  

Drew D. Creal

University of Chicago - Booth School of Business - Econometrics and Statistics

Siem Jan Koopman

Vrije Universiteit Amsterdam; Tinbergen Institute

Andre Lucas

VU Amsterdam - School of Business and Economics; Tinbergen Institute

Date Written: November 5, 2008

Abstract

We propose a new class of observation driven time series models referred to as Generalized Autoregressive Score (GAS) models. The driving mechanism of the GAS model is the scaled score of the likelihood function. This approach provides a unified and consistent framework for introducing time-varying parameters in a wide class of non-linear models. The GAS model encompasses other well-known models such as the generalized autoregressive conditional heteroskedasticity, the autoregressive conditional duration, the autoregressive conditional intensity, and the single source of error models. In addition, the GAS specification provides a wide range of new observation driven models. Examples include non-linear regression models with time-varying parameters, observation driven analogues of unobserved components time series models, multivariate point process models with time-varying parameters and pooling restrictions, new models for time-varying copula functions, and models for time-varying higher order moments. We study the properties of GAS models and provide several non-trivial examples of their application.

Keywords: dynamic models, time-varying parameters, non-linearity, exponential family, marked point processes, copulas

JEL Classification: C10, C22, C32, C51

Suggested Citation

Creal, Drew D. and Koopman, Siem Jan and Lucas, Andre, A General Framework for Observation Driven Time-Varying Parameter Models (November 5, 2008). Tinbergen Institute Discussion Paper No. 08-108/4. Available at SSRN: https://ssrn.com/abstract=1297183 or http://dx.doi.org/10.2139/ssrn.1297183

Drew D. Creal

University of Chicago - Booth School of Business - Econometrics and Statistics ( email )

Chicago, IL 60637
United States

Siem Jan Koopman

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31205986019 (Phone)

HOME PAGE: http://sjkoopman.net

Tinbergen Institute ( email )

Gustav Mahlerplein 117
1082 MS Amsterdam
Netherlands

HOME PAGE: http://personal.vu.nl/s.j.koopman

Andre Lucas (Contact Author)

VU Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6039 (Phone)
+31 20 598 6020 (Fax)

HOME PAGE: http://personal.vu.nl/a.lucas

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

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