A0277
Title: Time-varying parameter local projections with stochastic volatility
Authors: Jouchi Nakajima - Hitotsubashi University (Japan) [presenting]
Abstract: The local projection method 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 the error distribution. 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 are proposed. A Bayesian method using an efficient Markov chain Monte Carlo is developed to analyze the proposed model. The application to monetary policy effectiveness is provided using the U.S. macroeconomic variables.
