A time-varying parameter structural model of the UK economy
Abstract
We estimate a time-varying parameter structural macroeconomic model of the UK economy, using a Bayesian local likelihood methodology. This enables us to estimate a large open-economy DSGE model over a sample that comprises several different monetary policy regimes and an incomplete set of data. Our estimation identifies a gradual shift to a monetary policy regime characterised by an increased responsiveness of policy towards inflation alongside a decrease in the inflation trend down to the two percent target level. The time-varying model also performs remarkably well in forecasting and delivers statistically significant accuracy improvements for most variables and horizons for both point and density forecasts compared to the standard fixed-parameter version.
Citation
Kapetanios , G , Masolo , R M , Petrova , K & Waldron , M 2019 , ' A time-varying parameter structural model of the UK economy ' , Journal of Economic Dynamics and Control , vol. 106 , 103705 . https://doi.org/10.1016/j.jedc.2019.05.012
Publication
Journal of Economic Dynamics and Control
Status
Peer reviewed
ISSN
0165-1889Type
Journal article
Description
Katerina Petrova acknowledges support by the Alan Turing Institute under the EPSRC grant EP/N510129/1.Collections
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