Comparing Hybrid Time-Varying Parameter VARs
17 Pages Posted: 3 Jul 2018
Date Written: June 28, 2018
Empirical questions such as whether the Phillips curve or the Okun’s law is stable can often be framed as a model comparison—e.g., comparing a vector autoregression (VAR) in which the coefficients in one equation are constant versus one that has time-varying parameters. We develop Bayesian model comparison methods to compare a class of time-varying parameter VARs we call hybrid TVP-VARs—VARs with time-varying parameters in some equations but constant coefficients in others. Using US data, we find evidence that the VAR coefficients in some, but not all, equations are time varying. Our finding highlights the empirical relevance of these hybrid TVP-VARs.
Keywords: state space, marginal likelihood, Bayesian model comparison
JEL Classification: C11, C52, E32, E52
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