Bayesian Averaging over Many Dynamic Model Structures with Evidence on the Great Ratios and Liquidity Trap Risk
نویسندگان
چکیده
A Bayesian model averaging procedure is presented that makes use of a nite mixture of many model structures within the class of vector autoregressive (VAR) processes. It is applied to two empirical issues. First, stability of the Great Ratios in U.S. macro-economic time series is investigated, together with the e¤ect of permanent shocks on business cycles. Second, the linear VAR model is extended to include a smooth transition function in a (monetary) equation and stochastic volatility in the disturbances. The risk of a liquidity trap in the USA and Japan is evaluated. Although this risk found to be reasonably high, we nd only mild evidence that the monetary policy transmission mechanism is di¤erent and that central banks consider the expected cost of a liquidity trap in policy setting. Posterior probabilities of di¤erent models are evaluated using Markov chain Monte Carlo techniques.
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