Incorporating structural changes into time series models is crucial during turbulent economic periods. In this paper, we propose a flexible means of estimating vector autoregressions with time-varying parameters (TVP-VARs) by introducing a threshold process that is driven by the absolute size of parameter changes. This enables us to detect whether a given regression coefficient is constant or time-varying. When applied to a medium-scale macroeconomic US dataset our model yields precise density and turning point predictions, especially during economic downturns, and provides new insights on the changing effects of increases in short-term interest rates over time.
|Publication status||Published - 2017|
|Name||Research Report Series / Department of Statistics and Mathematics|
- 102022 Software development
- 101018 Statistics
- 502025 Econometrics
- 101026 Time series analysis
- Research Report Series / Department of Statistics and Mathematics