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Titel
Dynamic shrinkage in time-varying parameter stochastic volatility in mean models / Florian Huber
VerfasserHuber, Florian ; Pfarrhofer, Michael
Enthalten in
Journal of Applied Econometrics, Hoboken : John Wiley and Sons Ltd, 2021, 36 (2021), 2, Seite 262-270
ErschienenHoboken : John Wiley and Sons Ltd, 2021
SpracheEnglisch
DokumenttypAufsatz in einer Zeitschrift
Schlagwörter (EN)inflation forecasting / inflation uncertainty / real-time data / replication / state-space models
ISSN0883-7252
URNurn:nbn:at:at-ubs:3-25784 
DOI10.1002/jae.2804 
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Abstract

Successful forecasting models strike a balance between parsimony and flexibility. This is often achieved by employing suitable shrinkage priors that penalize model complexity but also reward model fit. In this article, we modify the stochastic volatility in mean (SVM) model by introducing state-of-the-art shrinkage techniques that allow for time variation in the degree of shrinkage. Using a real-time inflation forecast exercise, we show that employing more flexible prior distributions on several key parameters sometimes improves forecast performance for the United States, the United Kingdom, and the euro area (EA). Comparing in-sample results reveals that our proposed model yields qualitatively similar insights to the original version of the model.

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