Abstract
We estimate a time-varying parameter structural macroeconomic model of the UK econ-
omy, 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 pol-
icy 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 statis-
tically significant accuracy improvements for most variables and horizons for both point
and density forecasts compared to the standard fixed-parameter version.
Lingua originale | English |
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pagine (da-a) | N/A-N/A |
Rivista | JOURNAL OF ECONOMIC DYNAMICS & CONTROL |
Volume | 106 |
DOI | |
Stato di pubblicazione | Pubblicato - 2019 |
Keywords
- DSGE models
- Open economy
- Time varying parameters
- UK economy