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Bayesian analysis of structural correlated unobserved components and identification via heteroskedasticity

Author

Listed:
  • Li Mengheng

    (Economics Discipline Group, University of Technology Sydney, Sydney, Ultimo, Australia)

  • Mendieta-Muñoz Ivan

    (Department of Economics, University of Utah, Salt Lake City, USA)

Abstract

We propose a structural representation of the correlated unobserved components model, which allows for a structural interpretation of the interactions between trend and cycle shocks. We show that point identification of the full contemporaneous matrix which governs the structural interaction between trends and cycles can be achieved via heteroskedasticity. We develop an efficient Bayesian estimation procedure that breaks the multivariate problem into a recursion of univariate ones. An empirical implementation for the US Phillips curve shows that our model is able to identify the magnitude and direction of spillovers of the trend and cycle components both within-series and between-series.

Suggested Citation

  • Li Mengheng & Mendieta-Muñoz Ivan, 2022. "Bayesian analysis of structural correlated unobserved components and identification via heteroskedasticity," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(3), pages 337-359, June.
    • Handle: RePEc:bpj:sndecm:v:26:y:2022:i:3:p:337-359:n:2
    DOI: 10.1515/snde-2020-0027
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    Keywords

    identification via heteroskedasticity; permanent and transitory shocks; spillover structural effects; state space models; trends and cycles; unobserved components;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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