A0183
Title: Time-varying local projections with application to trade volume analysis
Authors: Jouchi Nakajima - Hitotsubashi University (Japan) [presenting]
Abstract: A general approach to dynamic modeling is discussed using the local projection (LP) method. Previous studies have proposed time-varying (TV) parameters in LPs; However, they did not address possible variations in error variances. Overlooking this could introduce significant bias in the estimate of the TV parameter, and consequently, the estimated impulse response. An estimation strategy is developed for LPs with stochastic volatility (SV), and the importance of SV inclusion is illustrated using simulated data. An application to a topical macroeconomic time-series analysis illustrates the benefits of the proposed approach in terms of improved predictions.
