A0564
Title: Time-varying parameter local projections with stochastic volatility
Authors: Jouchi Nakajima - Hitotsubashi University (Japan) [presenting]
Abstract: The local projection method proposed by a prior study has been widely used as a promising framework for computing impulse responses. In the previous literature, a time-varying version of the local projection has been proposed, but it does not address the time-varying variance of errors. Ignoring a possible time variation in the error variance could cause a severe bias in the time-varying impulse responses. To overcome it, the time-varying parameter local projections with stochastic volatility is proposed. A Bayesian efficient estimation method is developed to analyze the proposed model. The application to returns of financial variables is provided.
