Stochastic Model Specification Search for Time-Varying Parameter VARs

Eric Eisenstat, Joshua Chan and Rodney Strachan (2016)
Econometric Reviews, 35(8-10), 1638-1665
[ Journal Version | Working Paper | Code ]

This code implements a new econometric methodology to perform stochastic model specification search in the vast model space of time-varying parameter VARs with stochastic volatility and correlated state transitions.

Specifically, for each VAR coefficient, the algorithm automatically decides whether it is constant or time-varying. The code also has an option to estimate a standand TVP-VAR with SV.

The application investigates the dynamic effects of structural shocks in government spending on US taxes and GDP during a period of very low interest rates.