Shrinkage in the Time-Varying Parameter Model Framework Using the R Package shrinkTVP

Peter Knaus, Angela Bitto-Nemling, Annalisa Cadonna, Sylvia Frühwirth-Schnatter

Publication: Scientific journalJournal articlepeer-review

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Time-varying parameter (TVP) models are widely used in time series analysis to flexibly deal with processes which gradually change over time. However, the risk of overfitting in TVP models is well known. This issue can be dealt with using appropriate global-local shrinkage priors, which pull time-varying parameters towards static ones. In this paper, we introduce the R package shrinkTVP (Knaus, Bitto-Nemling, Cadonna, and FrühwirthSchnatter 2021), which provides a fully Bayesian implementation of shrinkage priors for TVP models, taking advantage of recent developments in the literature, in particular those of Bitto and Frühwirth-Schnatter (2019) and Cadonna, Frühwirth-Schnatter, and Knaus (2020). The package shrinkTVP allows for posterior simulation of the parameters through an efficient Markov Chain Monte Carlo scheme. Moreover, summary and visualization methods, as well as the possibility of assessing predictive performance through log-predictive density scores, are provided. The computationally intensive tasks have been implemented in C++ and interfaced with R. The paper includes a brief overview of the models and shrinkage priors implemented in the package. Furthermore, core functionalities are illustrated, both with simulated and real data.
Original languageEnglish
JournalJournal of Statistical Software
Issue number13
Publication statusPublished - 2021

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 102022 Software development
  • 502025 Econometrics
  • 101018 Statistics

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