Dynamic Shrinkage Priors for Large Time-varying Parameter Regressions using Scalable Markov Chain Monte Carlo Methods

Niko Hauzenberger, Florian Huber and Gary Koop

Papers from arXiv.org

Abstract: Time-varying parameter (TVP) regression models can involve a huge number of coefficients. Careful prior elicitation is required to yield sensible posterior and predictive inferences. In addition, the computational demands of Markov Chain Monte Carlo (MCMC) methods mean their use is limited to the case where the number of predictors is not too large. In light of these two concerns, this paper proposes a new dynamic shrinkage prior which reflects the empirical regularity that TVPs are typically sparse (i.e. time variation may occur only episodically and only for some of the coefficients). A scalable MCMC algorithm is developed which is capable of handling very high dimensional TVP regressions or TVP Vector Autoregressions. In an exercise using artificial data we demonstrate the accuracy and computational efficiency of our methods. In an application involving the term structure of interest rates in the eurozone, we find our dynamic shrinkage prior to effectively pick out small amounts of parameter change and our methods to forecast well.

Date: 2020-05, Revised 2023-05
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Dynamic Shrinkage Priors for Large Time-Varying Parameter Regressions Using Scalable Markov Chain Monte Carlo Methods (2024)
Working Paper: Dynamic Shrinkage Priors for Large Time-varying Parameter Regressions using Scalable Markov Chain Monte Carlo Methods
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2005.03906

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